The Demand for Sustainability and Risk Management
The COVID-19 pandemic uncovered the fragility of business operations – within the space of weeks, companies were forced to adjust to distribution channel and supply chain disruptions, workplace closings, and a virtual standstill in global trade. The global economy came to a screeching halt.
While the economy is slowly recovering and poised for increased activity, consumers and investors have discovered the importance of organizational sustainability. Corporations have to attend to demands for controls to embed sustainability as a core to business operations. To boil it down, organizations have to respond to these demands by building more sophisticated risk management and planning systems.
Sustainability requires effective risk management and investments needed to mitigate disruptions. A sustainable path does not mean an organization has no risk or is guaranteed some level of performance. To the contrary, every company faces unforeseen or high-impact events that can have a dramatic impact on its operations and overall performance. Sustainability translates into a demand for resiliency – effective strategies to mitigate what would otherwise be characterized as a major disruption.
Consumers and investors have properly focused on effective risk management. Companies have to refocus business planning systems and resources. At the core, business leaders should re-allocate business planning and focus to long-term results rather than short-term results. This is not a new issue.
Indeed, it is clear that the continued emphasis on quarterly or short-term results will only sacrifice improved risk management, long-term planning and ultimately sustainability. Risk management underlies every aspect of business operations and strategy – new business initiatives and the potential for short-term increases in profit may outweigh corporate efforts to build a sustainable supply chain that requires increased investment in arranging alternative sourcing and supply chain vendors.
The increased focus by corporate boards and senior management on sustainability is quickly focusing on the impact of climate change. Corporate boards have to redouble planning and initiatives in this area.
The re-focus from short-term financial results to a sustainable model requires a broad view of stakeholder interests, including employees, customers, business partners, the government, and communities, along with shareholders. Stakeholders demand sustainability and a balancing of all of these stakeholder interests.
Sustainability and effective risk management will bring about one of the more important results – sustainable, long-term growth. Short-term ups and downs rather than a long-term steady rate of growth advances not only shareholder interests but those of all stakeholders.
Sustainability planning requires patience. At its core, sustainable strategies are built on effective risk management tools, risk-ranking and effective corporate planning. Businesses know how to manage risks – corporate leaders know how to mandate such planning and ensure that such systems are built. Sustainability as an initiative can bring out the best from corporate strategists.
Consumers and investors have quickly embraced brands that implement sustainable systems and regularly report on these initiatives. Social and environmental responsibilities are quickly becoming must-have priorities in corporate governance. COVID-19 accelerated these demands exponentially.
With growing demands for climate change planning, companies that get ahead of the curve will succeed by attracting increased demand and investments. Those that avoid sustainability planning and reporting will suffer long-term consequences, joining a growing trash heap of short-term business strategies and demise.