I have been undertaking some investigative work on sustainability. It is fascinating to read, evaluate and recognize how each business is tackling its response to this. Sustainability has become increasingly important when facing a climate crisis and a rapidly changing world where nature is significantly under threat. It is we, the human race, that has prompted the crisis but have the power to change this into a more equitable world.
You get the growing sense that various stakeholders around our businesses are placing pressure on organizations to respond far more to managing sustainability, especially the large, more global ones. The growing concerns will form around Governance, Strategy, Risk Management and Metrics and Targets for distinct disclosures relating to their business.
Business tends to fall back on the broad ESG themes
Business tends to ask the question, “How do we offer sustainability pathways to drive business value? Now that is a very targeted positioning, and you naturally ask the follow-up questions. Questions to naturally frame this are “how do we reduce costs and risks? “to strengthen the trust with stakeholders” and “find the new growth opportunities”. These perhaps give a sustainability pathway internally but do these really tackle the bigger external issues such as climate challenges, environmental degradation or social inequality. Is that the role of the business or Governments and institutions set up to balance and defend, like the UN or the WEF.
Business often gets caught in its own world searching for customer impact, making sure it is empowering its people, applying technology appropriately and having a growth mindset. These are very business goal-driven and, if applied well, do deliver a more sustainable world but is this enough in today’s world? I think this is too narrow, we need to really step outside and view how our purpose builds into the external issues, that we all face, recognizing a significant crisis is ahead.
Much as I can relate to the ESG approach, I am not confident it is pushing hard enough as a framework.
The world faces a converging environmental crisis that is inextricably linked and compounding: the accelerating destruction of nature and climate change. Are natural climate solutions (NCS) considered at the right level of importance? How much should a business go beyond a sustainability mantle?
Clearly, the goal of reaching net-zero emissions in one’s own operations as well as pushing hard to bring this into the supply chain is paramount. Accelerating the target dates is becoming a must. This side of 2030 needs to be a new goal or aspiration point. But pushing for net-zero might have become simply table stakes. Consideration of the environmental and social impacts need to be considered far more.
Yet, the bigger picture needs factoring in; these are two: natures capital, climate and decarbonization.
Decarbonization is covered in another post; this one will stay focused on nature.
Surprising, our 8 billion people only are 0.01% of all living things by weight, yet humanity has already caused the loss of 83% of all wild animals and half of all plants. The rate of extinction across the diversity of our plant is accelerating. Should we in any sustainability assessment determine our current production and consumption patterns, land use and urbanization, population dynamics, trade, industry and governance models all are underpinning these losses and surely is calling for a radical reset of humanities relationship with nature.
The WEF, in a report Global Risks Report 2020, ranks biodiversity loss and ecosystem collapse within the top five in terms of likelihood and impact in the coming 10 years. The other three are water crisis, extreme weather and climate action failure. The confusion in the business world is how to confront these Biodiversity and Ecosystem losses practically. We can recognize these losses will be very material, and nature-related risks should form part of the regulatory framework provided by the company. The key is to mitigate and adapt business activities that degrade and destroy nature.
In this report by the WEF, the reliance on biodiversity is staggering. $44 trillion of economic value generation- more than half of the worlds total GDP- is moderately or highly dependent on nature and its services. The three largest sectors highly dependent on nature generate close to $8 trillion of gross value added (GVA). These are construction ($4 trillion), agriculture ($2.5 trillion) and Food and Beverage ($1.4 trillion).
These are primary industries reliant on nature and biodiversity, but the secondary and tertiary industries equally have significant concerns about protecting the environment. Six industries- chemical and materials; aviation; travel and tourism; real estate; mining and metals; supply chain and transport; retail, consumer goods, and lifestyle have 15% of their direct GVA yet still have significant “hidden dependence” through their supply chains, sometimes up to 50% highly or moderately dependent on nature.
So nature needs to be considered far more within Sustainability thinking, within each company.
Nature is material for businesses 1) when businesses depend directly on nature for operations, 2) When the direct and indirect impact of business on nature loss can trigger negative consequences, and 3)When nature loss causes disruption to society for both market and physical risks.
So the question is: how bold will any sustainability reporting be on managing nature-related risk? The need is to show fit-for-purpose and where the environmental, social and governance (ESG) process alongside a clearer climate change assessment has great value.
This venture requires a reset of the relationship between humans and nature- in doing so, innovations of the 21st venture need to deliver for both people and the planet responsibly- my, and others, call for responsible innovation.
If nature continues to decline, the prospects for business success and future prosperity dwindles (WEF), and the business increasingly runs more risk. It grows in reputational and legal risk. It also impacts operational and financial struggle to adjust. It is a moral and ethical one to commit far more to restoring natural ecosystems.
So as we work through the different Corporate sustainability reports, do we see clear fit-for-purpose nature-based risk management discussions- we should? Consideration for Natures Capital is becoming essential.
What is the impact of climate change on business? Quote from the Deloitte Report
“There are multiple impacts of climate change on companies. On the one hand, it creates a series of new business risks. Besides the most obvious physical risks (for example, the operational impacts of extreme weather events or supply shortages caused by water scarcity), companies are exposed to transition risks that arise from society’s response to climate change, such as changes in technologies, markets and regulation that can increase business costs, undermine the viability of existing products or services, or affect asset values. Another climate-related risk for companies is the potential liability for emitting greenhouse gases (GHG)”.
An increasing number of legal cases have been brought directly against fossil fuel companies and utilities in recent years, holding them accountable for the damaging effects of climate change. (Will these have a knock-on effect on those providing equipment and services as well?)
“But climate change also offers business opportunities. Firstly, companies can improve their resource productivity (for example, by increasing energy efficiency), thereby reducing their costs. Secondly, climate change can spur innovation, inspiring new products and services that are less carbon-intensive or enable carbon reduction. Thirdly, companies can enhance the resilience of their supply chains, for example, by reducing reliance on price-volatile fossil fuels by shifting towards renewable energy. Together, these actions can foster competitiveness and unlock new market opportunities.”
Sustainability reporting can be powerful.
It can shape the company going forward, it can mobilize the people employed or working in the ecosystem but it is the need to take the external factors of crisis we are all facing and making a compelling story of the contribution, awareness and concern. That is the challenge and that is so often beyond today’s sustainable report. We so often glaze over reading these reports, the businesses that cut through their needs and place those in the needs of our planet, climate and working purposefully towards this support for natures capital will eventually be judged as the sustainable ones.
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Principle reference documents:
“Nature Risk Rising: Why the Crisis Engulfing Nature Matters for Business and the Economy” World Economic Forum and PwC, January 2020.
Deloitte Insight “Feeling the Heat- Companies are under pressure to act on climate change and need to do more”, 2019.
“Consultation: Nature and Net Zero” World Economic Forum in collaboration with McKinsey, January 2021.based on Natural Climate Solutions (NCS).