Six growing trends in corporate sustainability

Corporate risk response is not adequate

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Companies’ concern of the risks sustainability issues bring to their supply chains, reputation and even their right to operate has not been matched by their appraisals of the costs and benefits of various responses.

Our survey found 79% of respondents saying that sustainability risks are incorporated into their enterprise risk management framework. Simply put, that means 8 in 10 companies have incorporated environmental risks into their risk register and that their board of directors has oversight of how those risks are addressed by management.

That struck us as a surprisingly high number, particularly in light of their responses to another question: whether their organization had run scenario analyses considering the availability of key inputs such as water or other raw materials, access to arable land or population shifts. Only three in 10 companies — fewer than half of those saying they have incorporated corporate sustainability into risk management — said they had run scenario analyses; 36% said they had no plans to do so.

It is clear that company risk awareness has not translated into preparedness.

The growing interconnectedness of issues —what some are calling the food-energy-water stress nexus — require a scenario-based approach that attempts to anticipate key tipping points that could quickly affect all three. What happens if a tipping point leads to the rapid adoption of carbon pricing or other regulatory responses?

Do you believe your company has the processes in place to anticipate effectively its exposure to increasing environmental, social and governance risk?

 

Most companies do not yet have answers to such questions. And by not doing scenario planning, they are failing to integrate such risks, let alone develop confident appraisals of the costs and benefits of different adaptive responses.

To the extent that companies view these things as financially material, it is not being mirrored in shareholder or regulatory disclosures.

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