Simply put, enterprises in 2023 can no longer afford to ignore sustainability. Governments, employees, customers, consumers, communities and the public at large afford companies their social license to operate through the granting of their support. In return, these stakeholders expect businesses to behave ethically and responsibly and will either use their leverage to ensure this happens or walk away if it doesn’t.
Embarking on a sustainability transformation journey enables enterprises modernise their cultural identity, address threats, exploit opportunities, build resilience, future proof operations and in short, ensure their long-term survival and viability.
Comply With Legislation and Regulation
Above all else, responsible businesses must comply with domestic and international laws and regulation. Many governments are now realising how important ESG reporting is to enable them meet their national targets on sustainable development and are leaning more and more towards legislation as the lever for corporate compliance. Examples of corporate governance reporting legislation include Europe’s Corporate Sustainability Reporting Directive (CSRD) and its proposed legislation for mandatory human rights due diligence in the supply chain (CSDDD); the UK Modern Slavery Act and the French Grenelle II Act. Mandatory reporting requirements for each country can be found in the Carrots & Sticks Sustainability Reporting Instrument Database or in The Reporting Exchange platform, a global resource for ESG reporting.
Satisfy Stakeholders
The time is coming when board members, customers, employees and investors will all want to see a company’s sustainability or ESG report. Board members want to protect the company against risk and/or may understand that sustainable companies are more resilient and performant.
Customers are diverting their spending power towards responsible businesses and want to be certain the enterprise is not green-washing or watering down its efforts. If a business cannot clearly demonstrate authentic sustainability credentials, its customers will move on to those who can.
Employees want to work for ethical companies so they in turn can contribute to a cause greater than themselves. Organisations risk losing talent by not engaging in this process.
Finally, investors need ESG information to help them assess risk and to facilitate mobilisation and re-orientation of capital towards green projects and programmes. Those who can readily provide this information will be more likely to avail of investment when needed.
Gain Competitive Advantage
Companies can improve their competitive advantage in a number of significant ways. By broadening their appeal to new customers who are looking for ethical products and services and by increasing market access through the provision of new goods and services brought about by identified opportunities, businesses have the potential to unlock substantial additional revenue.
Newly implemented processes and efficiencies can reduce costs and increase enterprise value.
Strengthening relationships with stakeholders through increased collaboration, transparency and communication can inspire trust and help secure the company’s overall offering.
Avoid Harm and Protect Reputation
Negative impact can have a very detrimental effect on a company’s social license to operate and should be addressed by companies as a priority when discovered. Not only are companies held responsible for adverse impact in their operations, very often they are held responsible for negative impact discovered in their value chain. This means that companies may suffer reputational damage if their suppliers or partners are found to be engaged in illegal or unethical behaviour. Examples of illegal, unethical or irresponsible business practices include causing pollution or environmental damage, using forced or child labour, discrimination and corruption. Proactively conducting due diligence on enterprise operations and all value chain stakeholders will help companies reduce their risk of causing, contributing to or being linked to harm through their business relationships and will protect their reputation.
Build Resilience and Future Proof
Understanding the environment in which they operate and proactively managing risk can help companies become more resilient and increase their probability for long term viability. As a result of effective due diligence and IRO (Impact, Risk, Opportunity) management processes, companies can reduce their cost base by introducing efficiencies in response to risk or impact, retain a portion of capital for contingent events, take mitigating action to avoid or reduce risk and negative impact and identify opportunities for additional value creation.
Find out more about how to start your sustainability journey here.
