How a Sustainability Agenda is Driven by Risk Management

October 11, 2018

I read lately The State of Sustainable Business 2018 report. The 10th annual BSR/GlobeScan survey of sustainable business leaders provides insight into the world of sustainable business, and identifies common perceptions and practices of corporate sustainability professionals.

One of the key findings from the report is that the priority issues covered by the sustainability agenda of companies are being driven more by risk management than value creation. It’s important to distinguish between the actual priorities and what is driving them. The top priorities of corporate sustainability agendas are still issues that we would expect to see, such as climate change, human rights, ethics/integrity, inclusiveness, etc. But is the underlying driver propelling these issues to the top of the list of priorities.

Let’s take a closer look at how risk is a powerful driver of sustainability efforts. The survey included this question: “Which of the following are the most important drivers for your company’s sustainability efforts?” Respondents were provided a list of drivers and they had to rank the three most important ones by entering 1, 2 or 3. Three drivers clearly emerged from the pack to form a top tier (see page 16 of the report for more details). They are the following in order of importance:

1) Reputational risks/benefits. Mentioned as the 1st driver by 26% of respondents, and as a top-three driver by 61%.

2) Consumer/customer demand. Mentioned as the 1st driver by 16%, and as a top-three driver by 47%.

3) Operational risks/benefits. Mentioned as the 1st driver by 13%, and as a top-three driver by 38%.

The top spot of reputational risk among drivers could be explained by the convergence of ethics, integrity, and sustainability. Ethical issues have historically been handled by compliance and legal teams, but “uncertain and inconsistent regulation means that legal risk is no longer a good proxy for reputational risk”, the report says.

The need to mitigate reputational and operational risks is clearly the underlying catalyst fueling many sustainability initiatives. For many organizations, corporate sustainability is an additional vehicle through which risks are reduced. It’s worth noting that corporate sustainability is not the only vehicle to reduce risks, but a vehicle among many (e.g. EHS management, operational management).

This also explains why investors are focusing more on ESG factors. It’s not just because they want to invest in companies that are “doing good”, but also because the sustainability performance of a company provides a strong indication of how successfully it is mitigating risks and achieving resilience.

There are two takeaways from the convergence of corporate sustainability and risk management. First, there must be greater collaboration between the sustainability and risk management functions. Second, there is great value in managing sustainability, risk and EHS on the same, integrated software platform. Having everyone on the same system increases collaboration between different functions, and helps to establish connections between reputational risks and sustainability initiatives that can contribute to mitigate the risks. Goldcorp, one of the leading gold producers in the world, is an excellent example of a company .

In conclusion, organizations should go beyond simply managing sustainability, risk, EHS and operations. They must also actively seek synergies between all functions. These synergies will often create the most benefits.

Download NAEM’s 2017 EHS and Sustainability Software Buyer’s Guide and learn more about the business objectives for EHS and Sustainability software buyers, desired software capabilities, and their selection criteria:

NAEM 2017 EHS & Sustainability Software Buyer’s Guide