One important reason for embracing sustainability in an organisation is the ability to manage risks better.
By incorporating sustainability-related risks as part of an organisation's overall enterprise risk management framework, the organisation gets a comprehensive picture of how the various non-financial risks interact and translate into financial risks.
Therefore, organisations can build multiple outcomes using different scenarios, including stress testing, to develop a response playbook for the organisation if such risks occur. This approach to managing future uncertainties enables such organisations to build resilience, particularly at a time like this when the operating environment is faced with a high level of uncertainty and complexity.
Succeeding in an uncertain and complex environment requires an ability to plan for different future outcomes rather than attempting to predict the future.
Having sustainability-related risks incorporated into risk management at an organisation will provide management with holistic information required for decision-making and planning. It forms part of an organisation's business case for sustainability because it delivers financial and non-financial returns in the short, medium and long term.
Organisations can reduce their supply chain risks by incorporating sustainability in their overall risk management process.
Organisations can manage supply chain risk better because sustainability requires an extension of the organisation's boundary of influence, impact and reporting beyond activities owned or controlled by them.
This extension enables organisations to get a better view of the potential disruptions to their supply chain and put in place measures to mitigate those risks.
Following the Covid pandemic, organisations have deliberately reduced the impact of supply chain disruptions on their operations. While Covid was a health hazard, other disruptions include social unrest, industrial actions, and geopolitical conflict, to name a few.
Other risks that are better managed are regulatory and compliance risks. Governments across the globe continue to enact policies, laws and regulations on sustainability, including reporting obligations ranging from sourcing, waste management, labour, energy, and transportation that impact different industries.
Organisations must assess these new policies to understand how they affect their business, including ensuring they comply.
For example, an organisation might implement measures for managing risk in fossil fuel-related investments while taking advantage of government incentives for green investments.
This way, an organisation can plan its transition without adversely impacting profitability by incorporating sustainability into its enterprise risk management framework.
This article was first published on Business Daily and can be accessed here.