Risk Mitigation: A Business Case On Working With Sustainability

17-09-2019

Sustainability in business has many benefits, one of them being risk reduction. This article is part of a series to discuss the benefits of what happens when organizations work with sustainability in their core operations.

Risk Mitigation

In 2018, the World Economic Forum reported that the third biggest risk in the next decade to the global economy and business operations is “failure of climate change mitigation and adoption”, just after “natural disasters” and “extreme weather events”. Knowing where to look, identify, and lower forthcoming risks can help reduce unnecessary costs.

The New Sustainability Advantage addresses six specific risks that all businesses should focus on:

  • Risks to revenue and access to markets

  • Risks of fines for non-compliance

  • Risks of bills for externalities

  • Risks for climate change

  • Risks to market value

  • Risks to access to capital

By focusing on these risks, companies are able to use foresight into the industry and overall trends to remain ahead of their competitors, the legal system, and maintain proper market share. Many organizations are already doing this. Unilever is converting many of their products from single-use plastic to reusable. Why? It gives them good press coverage and, seeing the initiatives to ban single-use plastics, it keeps them ahead of the legislation.

Furthermore, working with sustainability helps you avoid unforeseen financial loss. Why? Reputation risk is a struggle for some organizations to fully grasp, and in a growing age of social media, it’s an important aspect to maintain. Everyone old enough remembers the wave of brands in the 1980-2000’s being protested due to child sweatshop labor. By working with sustainability, many of these brands have removed the negative view on their name and changed things around. One common example is Nike, who became a large name involved in the news. From the time of the early 1990’s until today, Nike has done a lot to change how they do business. Becoming a leader in sustainability, Nike developed their North Star Innovation Goals with The Natural Step.

Risks to Revenue

According to Bob Willard: “There are seven potential hits to revenue if a company eschews sustainability strategies. Five of them arise from potential brand erosion on environmental footprint issues; one is based on lack of actions to mitigate escalating energy, water, and material expenses; and the last is the threat of sudden disruption of the company’s supply chain or access to customers.”

Those risks are: 

  1. Risk to revenue from poor reputation on energy and carbon management

  2. Risk to revenue from poor reputation on water management

  3. Risk to revenue from poor reputation on materials and waste management

  4. Risk to revenue from poor supplier reputation and behaviors

  5. Risk to revenue from poor reputation on eco-system damages

  6. Risk to revenue from less competitive prices

  7. Risk to revenue from sudden disruptions in the value chain

Example: Volvo Goes Electric

One company who is already working on risk and its future is Volvo. Volvo operates in many areas where there is carbon pricing on fossil fuels, where an increase on taxes can make the purchase of fossil fuels more expensive than the alternative. Air quality and quality of life are becoming a bigger topic and concern, where according to the UN, 2/3 of the world’s population will be living in big city areas by 2050, with megacities on the rise.  China, already known for its robust population and demand for cars, is aggressively changing its laws to put more electric cars on the road, the BBC writes.  

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