Sustainability has many meanings.
- In broad terms, sustainability means meeting today’s needs without jeopardizing the ability of future generations to meet theirs.
- Social sustainability means managing business impacts on people, including employees, workers in the value chain, and local communities.
- Environmental sustainability means creating and maintaining the conditions for humans and nature to exist in productive harmony to support present and future generations.
No matter the lens you use for viewing it, sustainability is about operating so that your company succeeds today and tomorrow.
Why Should Companies Focus on Sustainability? Stakeholder Demand.
Companies think about sustainability for many reasons which include stakeholder demand. Stakeholders include:
The US does not have comprehensive sustainability laws and regulations. Instead, sustainability issues are regulated by a number of US federal agencies as well as by individual states. For example,
- The US Securities and Exchange Commission requires public companies to report on environmental impact and risks in the company’s Annual Report on Form 10-K, which also must include a report on human capital management.
- The US Environmental Protection Agency requires large quantity generators to report on hazardous waste generated at their facilities. The EPA’s Greenhouse Gas Reporting Program also mandates reporting of greenhouse gas (GHG) data from large GHG emission sources. About 8,000 facilities report their emissions annually.
- Employers who have at least 100 employees must submit an EEO-1 Report (a form with information about employee job categories, ethnicity, race, and gender) to the US Equal Employment Opportunity Commission and the US Department of Labor every year.
A Bloomberg headline from January 2022 announces that ESG investing may surpass $41 trillion in assets in 2022. ESG investors require information to help them evaluate the environmental, social, governance, as well as financial, risks and performance of the companies they invest in. ESG investors have investing policies and criteria that may require them to divest themselves of holdings in companies that do not meet required benchmarks.
Customers, Lenders, and Insurers
Customers, lenders, and insurers evaluate the risks and risk management of the companies they buy from, lend to and insure.
- Customers, particularly large ones with significant market power, often require suppliers to report on a wide range of ESG-related topics.
- Lenders increasingly look at risks such as those related to climate change in their evaluation of a borrower’s creditworthiness.
- Companies that insure property and business continuity consider the climate-related risks of their insureds. Employment practices insurers consider employee-related claims and litigation.
Employees are a major stakeholder group for companies to consider and we will devote an upcoming blog to an examination of this stakeholder group.
Why Focus on Sustainability Now?
There are pressing environmental and social issues that need to be acknowledged and planned for now.
The Environment. Though there is disagreement on the scientific details, we face real and pressing environmental issues. The planet is warming and the oceans are rising. Homes and lives have already been lost. Storms are producing water that city systems cannot handle.
For thousands of years humans flourished thanks to relative climate stability. According to Probable Futures,
Assumptions of a stable climate are now built into everything around us. Farmers and city dwellers in dry regions rely on distant mountain snowmelt for irrigation and drinking water. There are communities that migrate during the year to follow predictable patterns of weather and animal migrations for sustenance and survival. Power systems and roads are engineered to withstand a limited number of days above specific temperature thresholds.
Not being able to count on climate stability poses risks that businesses need to evaluate and manage. How will more-frequent hundred-year storms impact your property and buildings? How will you adapt if your locations in heat zones become uninhabitable?
Clear Strategy can help you plan now for those risk events and for what you can do to minimize global climate risk. Acting now will help make it possible to continue to enjoy the bounty this planet entrusted to us.
Social. There are many urgent social issues but none more pressing than water insecurity.
Water, it is said, is the new carbon. It is essential to life on Earth, yet it is scarce. In 2015 the World Economic Forum listed water crises as the largest global risk in terms of potential impact. In February of 2022, Matus Samel, Research Manager at Economist Impact, writes, “More than 3.5bn people live in areas that experience water scarcity. This is set to increase to more than 5bn by 2050.”
As much of the world’s water is used by industry, industry has a key role to play in ensuring that water remains available to support human life as well as industrial activity.
Clear Strategy can help you analyze your role in water quality and availability, and manage the water-related risks faced by your business, employees, and the communities in which you do business.
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