Climate change and sustainability services

Sustainability risk drivers

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From its origins, the core concern of sustainability has been the idea of planetary boundaries and the point at which these converge with population and economic growth.

As sustainability has grown to encompass a broader agenda, this original concern remains the principal driver of sustainability’s emergence as a key source of risk to modern companies.

 

Sustainability Risk Drivers

EY - Risk dirvers - five categories.

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Strategic

Though it is not always apparent, societies and economies are changing to meet the environmental challenges that face them. Whether it is distributed electricity generation, electric vehicles or urban water recycling, the world is in the process of fundamentally re-envisaging key aspects of the built environment and any company not factoring this into their planning and asset allocation risks being left behind.

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Compliance

Many companies face new and expanding regulatory compliance risks resulting from an increasing number of international, national and regional programs, including health and safety labor laws, anti-bribery and environmental performance. These are paired with the growth of voluntary compliance mechanisms, particularly in the context of human rights, to which a growing number of companies are holding themselves publically accountable.

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Reporting

As stock exchanges prepare to react to environmental and social issues playing out in the marketplace, companies face mounting pressure to disclose their sustainability performance to their investors and to therefore also develop a strong internal control environment capable of producing investment-grade information.

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Reputational

The globalization of the sustainability challenge poses enormous reputational risks to companies identified as unwilling to adapt to this new reality. At the same time, those companies that are capable of achieving genuine first-mover status may find a stakeholder base with a significantly heightened appreciation of the value of their actions, enabling a much stronger social license to operate to be obtained.

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Operational

Freshwater shortage, desertification, and short- and long-term climate events will create risks for price shocks and supply disruptions as the global population continues to increase over the next 50 years. Operations will need to investigate new ways of remaining resilient and to attempt to anticipate the occurrence of bottlenecks before they are unavoidable.