Dr. Rodney Irwin, Managing Director of Redefining Value and Education at the World Business Council for Sustainable Development (WBCSD)
For many, the sustainable choice is the alternative choice: alternative lightbulbs, alternative cars, alternative shopping bags, alternative business models. But there’s no longer a need for the sustainability community to present itself this way – especially in relation to business.
The world is changing. Every day, businesses face new and emerging risks related to environmental, social and governance (ESG)-related issues. In a world more connected than ever, these risks can be felt more directly and more immediately than they used to be.
Ten years ago, the top global risks in terms of impact included only one ESG risk. But today, environmental and social risks account for four of the top five risks in terms of impact. Businesses must quickly learn to catch up.
Focusing solely on financial performance has – for too long – meant that companies have blind spots with respect to their wider performance, resilience and risk profiles, especially in relation to ESG issues. Management frameworks are often not designed to consider non-financial risks and opportunities, meaning that they can easily be misunderstood or overlooked, unintentionally reinforcing patterns that contribute to short-termism and serious global issues like climate change and resource scarcity.
Although some companies are working to understand and even report on ESG information, these efforts are often communication-driven and – as such – key stakeholders, like investors, don’t see the information as important for making their capital allocation decisions.
This is a paradox for the business and for the investor, increasing exposure to risk and missing potential opportunities.
In order for companies to be successful, they need to understand and manage their risks and opportunities – as well as their impacts and dependencies (ESG and otherwise). They then need to grow the confidence and context needed to apply this information, and use it to make more robust, better informed decisions. From there, they can start to effectively disclose this information and help investors and market-participants make their own informed decisions about where to allocate capital.In order for companies to be successful, they need to understand and manage their risks and opportunities #NewMetrics Click To Tweet
When companies take ESG considerations into account, they strengthen their processes for risk and opportunity management, decision-making, governance and internal controls. When this results in better performance, and demonstrates value to the board, the system reinforces itself and strengthens efforts around ESG reporting and disclosure. Companies who do manage risks, seize opportunities and make better decisions, are often more successful – and probably attract stronger investment in the medium to long-term.
In other words, managing ESG issues and seizing ESG opportunities helps differentiate the leaders from the laggards.Managing ESG issues and seizing ESG opportunities helps differentiate the leaders from the laggards. #NewMetrics Click To Tweet
If we take “sustainability” out of the equation, we see that assessing risks, seizing opportunities, understanding impacts and dependencies aren’t “alternatives,” they’re the mainstream nuts and bolts of good business. This is where the most exciting developments in sustainability are happening.
The World Business Council for Sustainable Development’s (WBCSD) Redefining Value program is using mainstream business processes and language to help companies recognize a wider range of “capitals” (natural, social, human, manufactured and intellectual) as a critical part of their business strategy, not as an alternative.
To accomplish this, the program is working alongside mainstream risk management, accounting and assurance bodies including the Committee of Sponsoring Organizations of the Treadway Commission (COSO), the International Auditing and Assurance Standards Board (IAASB), IPICA and the Task Force on Climate-related Financial Disclosures (TCFD) to translate critical ESG considerations into the language and metrics the financial system understands (risk management, cost of capital, returns on investment, for example).
So, what is it about the word “sustainability” that makes people feel like it’s the antithesis of business?
We haven’t been focusing enough on the fundamentals: Risks, opportunities, decision-making, governance, external disclosure and assurance. And we haven’t connected with the right teams internally: Finance, compliance and risk officers.
This needs to change. Framing sustainability as “lesser than or equal to” traditional business is more than incorrect, it’s detrimental to the future of the economy, the environment and society.Framing sustainability as “lesser than or equal to” traditional business is more than incorrect, it’s detrimental to the future of the economy, the environment and society. #NewMetrics Click To Tweet
Accountants and other finance professionals are in a unique position to harness the tools and developments across mainstream business to drive the world towards a more sustainable future.
If accountants will save the world, how will you do your part?
It’s time to move sustainability from alternative to mainstream.