Jul 2024

Greener Goals, Hotter Risks: Navigating Fire Risks in the Pursuit of ESG Objectives

The push towards improving Environmental, Social, and Governance (ESG) scores has become a significant trend in the commercial property sector. However, this drive towards sustainability and ethical practices has inadvertently led to an increase in commercial property risks, particularly fire risks.

Major institutional investors, such as BlackRock and Vanguard, have made ESG a key consideration in their investment decisions, putting pressure on companies to improve their ESG scores. Additionally, consumers are increasingly favoring brands that prioritize sustainability and social responsibility, further incentivizing companies to adopt ESG practices.

This article explores the intricate relationship between ESG and commercial property risks, shedding light on how the pursuit of sustainability may inadvertently undermine the very goals ESG initiatives aim to achieve.

Wind turbine catches fire, sparks grass fire in western Oklahoma

Fire Risks and Carbon Footprint

The fire risk could increase “…carbon emissions over the lifetime of a facility by up to 14%.” (1). As FM Global’s Dr. Louis Gritzo put it, “Newer sustainability technologies also involve hidden carbon impact[s]…Solar panels are vulnerable to wind, electrical fire, and buildup of combustible debris. Green roofs can become serious structural risks when waterlogged. Energy-efficient cladding can be combustible, as in the Grenfell Tower fire. Wind turbines can collapse in strong winds or catch fire in lightning storms. Fires pollute, and all these scenarios require carbon-producing cleanup and reconstruction using materials that generate carbon in their production.”

[1] (https://www.fmglobal.com/insights-and-impacts/2023/if-its-not-resilient).

The Unintended Consequences

While ESG efforts are commendable, they introduce new risks. Some environmentally friendly building materials used to reduce a company’s carbon footprint may have lower fire resistance compared to traditional counterparts. For instance, certain types of insulation made from recycled materials or plant-based fibers can be more combustible than traditional mineral wool insulation. While well-intentioned, the use of these materials can compromise the overall fire safety of a commercial property.

Additionally, energy-efficient systems like electrical appliances and wiring, while contributing to reduced energy consumption, might increase the risk of electrical fires if not installed or maintained properly. Faulty wiring, overloaded circuits, and outdated electrical systems have been linked to devastating fires.

Green roofs, popular for their energy efficiency and urban heat reduction benefits, can serve as potential fuel sources in case of a fire, complicating firefighting efforts. Proper firebreaks and preventive measures are crucial to mitigate these risks.

Roof-mounted photovoltaic (PV) systems, while beneficial for renewable energy generation, pose several fire risks. These systems often involve electrical components located in exposed and hard-to-access areas, which can lead to electrical faults and arcing, potentially igniting fires. The presence of combustible materials in the panels and their mounting systems can exacerbate fire spread. Additionally, the gap between the panels and the roof can facilitate rapid fire propagation, making it difficult for firefighters to access and extinguish the blaze. Firefighters also face risks of shock and electrocution due to the continuous electricity generation by the panels, even when isolated. These factors collectively increase the complexity and severity of fires involving roof-mounted PV systems.

Balancing ESG Goals and Risk Management

Stricter environmental regulations and sustainability goals may inadvertently divert attention from critical fire safety compliance. Companies may allocate resources and efforts toward meeting ESG targets at the expense of maintaining fire prevention and emergency response protocols. This shift in focus can leave commercial properties more vulnerable to fire incidents and their subsequent consequences.

An integrated approach that considers both ESG principles and comprehensive risk management strategies is essential to create a safer and more sustainable future. Conducting thorough risk assessments and developing robust risk management strategies will help balance ESG goals with fire safety. Engaging with stakeholders, including investors, tenants, regulators, and fire safety experts, will ensure that ESG efforts align with expectations and best practices.

Impact on Property Insurance

Insurance companies may take a closer look at the fire risks associated with ESG initiatives when underwriting commercial property policies. Premiums could potentially increase for properties deemed to have higher fire risks due to the use of alternative building materials or energy-efficient systems.

Apartment Fire – Valencia, Spain

Lessons from Past Incidents

Several high-profile incidents have highlighted the potential fire risks associated with ESG initiatives. The Grenfell Tower fire in London, which claimed 72 lives, was exacerbated by the use of combustible cladding materials installed as part of energy-efficiency upgrades. Similarly, the apartment block fire in Valencia, Spain was fueled by the building’s combustible exterior cladding.

While intended to be eco-friendly, the use of these alternative materials with lower fire ratings can increase the risk and severity of fires in commercial buildings.

These incidents serve as stark reminders of the importance of carefully evaluating the fire safety implications of ESG initiatives and implementing appropriate risk mitigation measures.

Conclusion

While the push for improving ESG scores is commendable, it inadvertently increases commercial property risks, particularly fire risks. By recognizing and managing these risks, companies can ensure their ESG efforts contribute to their long-term success.

The goal should be to create a commercial property sector that is not only sustainable and ethical but also resilient and profitable. Striking a balance between environmental, social, and governance goals and maintaining stringent fire safety measures is essential for the holistic well-being of businesses and the communities they operate in. This is the true measure of success in the push for ESG.

Risk Logic Engineers specialize in conducting risk assessments that help organizations identify and manage potential hazards associated with ESG projects. Contact us for more information.