2022 brings a renewed focus on sustainability and its risks

As COVID-19 slowly shows signs of abating, more businesses are gearing up for a return to near normal. And as part of this process, many organizations may renew their focus on sustainability, bringing it back as a key initiative for 2022. However, to get re-started, it’s important for businesses to examine their approach to sustainability and elevate their understanding of the risks involved. By developing proper reporting, and understanding the risk factors, organizations may become better prepared to integrate sustainability into their overall operations in 2022 and beyond.

Sustainability reporting – once optional, now imperative

Traditionally, sustainability reporting has been a voluntary practice. However, recent developments, such as the Paris Climate Agreement, and increases in regulatory standards and legal inspections, have led to greater emphasis on Environmental, Social, and Governance (ESG) initiatives, and a greater overall push toward cohesive, sustainable, and resilient economic systems. At the same time, senior leadership and boards are gaining a better understanding of the impact of climate change, population growth, and global warming, and can translate these events into tangible risks and opportunities for organizations to manage.

But how can an organization reach its ESG goals, and demonstrate progress toward reaching them along the way? Reporting and measurement can play a key role in the overall practice and is now becoming an imperative for organizations. By implementing a sustainability performance management program, decision makers will have the necessary, relevant information to analyze and identify the value of sustainability in their organizations. In addition, performance and progress can be communicated to various internal and external stakeholders who may play an important role in supporting and aligning with sustainability programs, both today and in the future.

Risk indicators and risk ownership for sustainability

For some, sustainability is still a relatively new concept, and while organizations may aspire to think and act in a sustainable way, they might be at lower levels of maturity on this journey. For example, the enthusiasm for meeting sustainability goals may lead some organizations to ignore or downplay the various risks that it can have for a business along the way.

“Risk ownership” is an important concept for organizations to become familiar with, as is the need to learn how to integrate ESG risk into a risk management framework. The integration of climate and sustainability-related risks into the overall risk management strategy will be a focal point moving forward, with boards increasingly focusing on risk quantification.

Elevating organizational risk capabilities

What steps can a business take to be more risk savvy when it comes to ESG? First, recruit and hire skilled professionals with expertise to manage sustainability risks. Second, consider creating a sustainability initiative department that works closely with other groups in the organization. Next, conduct sustainability risk assessments and seek to mitigate any immediate concerns that are observed, wherever possible. And finally, remember that all of the above can only take place through the support and active involvement of the senior leadership and the board. The highest levels of the business need to be committed to sustainability and establishing best practices for it, and driving that commitment across other departments.

The impact of climate change

There have been enough warnings globally that have led organizations to realize that we are now at the tipping point as far as climate is concerned. Understanding how close we are to disaster should bring an increased sense of urgency, which will, in turn, help accelerate the sustainability agenda across the world and galvanize leaders to analyze the carbon footprint of their organizations. While 2020 helped raise awareness of what climate change can do to the planet, this year may be more about focusing on concrete, sustainable initiatives that organizations can explore to tackle sustainability issues.  

Sustainability in the boardroom

Sustainability has been elevated as a key boardroom conversation and top-of-mind priority for the C-suite and senior leadership – as they will spearhead any policy-related changes, such as the shift to renewable energy, use of more sustainable materials, and a reduction of unnecessary (air) travel. Organizations may also need to create a new position – the Chief Sustainability Officer (CSO), who would be responsible for their sustainability initiatives. In a recent survey conducted by Deloitte, almost 99 percent of respondents indicated that the role of the CSO will grow in prominence over the next two years playing a pivotal role in the sustainability agenda and driving proper consideration of risks.

Sustainability is set to be at the forefront of 2022, but organizations may first need to reconfigure to build a sustainable risk mindset, along with proper structure and processes throughout the business. While planning the strategy for the next three-to-five years, senior leadership and boards will face the need to assign significant focus to sustainability, while also keeping in mind the various risks involved, alongside the potential impact of continued climate change. All of these factors are important drivers for change, both in organizations and in communities around the world.