Want to succeed in sustainability? Learn to manage risk

The opinions expressed here by Trellis expert contributors are their own, not those of Trellis or its editors.

It’s no surprise that corporate sustainability today is increasingly viewed as a risk management exercise. Sustainability professionals are expected to wear multiple hats: “sustainability expert,” “compliance director” and “risk manager.” This intersection is being driven by tightening international reporting requirements, supply chain vulnerabilities and the need to strengthen the connection of sustainability to business outcomes. 

In short, to succeed in today’s environment, sustainability managers must thoroughly integrate their job into the core functions of a company’s business model, including enterprise risk management, strategy and finance. 

Why this dual role is an asset

As ESG is increasingly seen through the lens of risks and opportunities, it’s becoming not only integral to business strategy, but also a competitive advantage for companies that take this holistic view. Many regulatory and voluntary reporting systems frame sustainability not only through the lens of risks and opportunities, but also specifically call out the actual or financial impacts that sustainability-related issues represent to a business.   

For instance, supply chain vulnerabilities due to climate hazards, such as drought, extreme heat and storms, force businesses to assess these events through a risk management and resilience lens. The Corporate Sustainability Reporting Directive (CSRD) further cements this connection with double materiality assessments, enterprise risk management evaluations and value chain analysis. The Task Force on Climate Related Financial Disclosures (TCFD) and the related Task Force on Nature-Related Financial Disclosures (TNFD) are cases in point. These frameworks rapidly became de rigueur for companies disclosing their sustainability performance, and their structure heavily influenced the new reporting framework from the International Sustainability Standards Board (ISSB). 

Case studies of this evolution

As part of Sustainserv’s consulting work with a national provider of childcare services, we found significant risks related to heat stress among both older workers and the young children they serve. The number of days where outdoor playtime needed to be curtailed and brought indoors was also significant. As a result, climate-related risks are now seen by the client as a core risk category to consider in its planning efforts. 

In another case, a global manufacturer of consumer electronics recognized that many manufacturing facilities that they depend on were located in areas of elevated exposure to hurricanes and large storms. This became the impetus to diversify and increase the resilience of their manufacturing sites — which became critical when a major site was damaged in an industrial fire. 

Another client, a manufacturer of equipment used in the forestry industry, recognized that climate change is changing the species and sizes of trees that its customers are able to grow. As a result, the company is developing technologies that enable its customers to maximize recovery of fiber from recycled paper, rather than primary timber resources, efficiently utilizing lower-quality fibers and feedstock while helping to develop markets for alternative fiber sources.   

Three ways to thrive

As these examples demonstrate, sustainability leaders need to be an integral part of the team facilitating and overseeing this work. Here are three ways they can succeed in this increasingly integrated environment.

Acknowledge and embrace the interconnectedness. While it’s familiar to sustainability professionals, this shift isn’t always openly discussed. This isn’t about replacing risk managers, but recognizing that understanding and embracing this interconnectedness is an asset for sustainability professionals and the businesses they serve.  

Build awareness and credentials. To best meet the demands of managing risk, sustainability professionals can seek out new ways to build their risk-management awareness and credentials. For instance, sustainability consultants should pay close attention to how risk management frameworks overlap with environmental and social issues that impact businesses’ bottom lines. Simply calling attention to this overlap is the first step in ensuring the best plan is in place for the business. 

Make friends with the risk team. Finally, sustainability professionals should build relationships with their risk management colleagues and familiarize themselves with enterprise risk assessment, including language and tools, such as heat maps, risk registers and scenario analyses. This collaboration can also help identify gaps in existing risk assessments, creating opportunities for sustainability and risk teams to collaborate to address them. 

The increasing overlap between a company’s ESG and financial goals supports the case that sustainability leaders have been making for years: Sustainability practices have an inherent business value.