That Sustainability is the best Risk Management we have been convinced of for a long time. It is the foundation of our support to companies. In fact, adopting sustainability strategies, objectives and processes is the best way to manage uncertainty to a business’ advantage. In this article we see why we move from the main international standard for Risk Management, ISO 31000:2018.
What we mean by Uncertainty
Let’s start with the very definition of “Risk” given by the guideline: “Risk is the effect of uncertainty on objectives”. Therefore uncertainty can have as a consequence an effect on the ability of the company to achieve its objectives.
Now, uncertainty derives from the mutability of the conditions of the context in which the company operates, internal and external. Risk as conventionally understood is that which follows from possible events and can only generate damage: for example, a flood, or soaring oil prices. Usually, risk is managed by trying to prevent it or mitigate its consequences with “controls”. For example, this is typical with health and safety risks. Another way is by risk transfer measures such as insurance.
The uncertainty management, on the other hand, allows to consider both the possible negative and positive effects that the context may have on the objectives. In other words, it allows to consider both the “threats”, or negative risks, and the “opportunities”, the positive risks. In this sense, Risk Management is a fundamental strategic tool for the company: it continuously assesses the context to make the most of it in achieving its objectives.
And what for Sustainability
Sustainability was first defined academically in 2012 by our Chief Scientist, Prof. Robert B. Pojasek, PhD:
“The ability of an organization to manage its responsibilities for the care of the environment, the generation of shared economic value and social well-being in the long term, transparently accountable to its stakeholders, thus ensuring its legitimacy to operate”.
The concept of license to operate, typically Anglo-Saxon, becomes more understandable if we combine it with:
- compliance with standards in a general sense
- prevention of damages or sanctions of financial, civil or criminal nature
- protection of reputation
- positive perception of the company in the community and in the marketplace
- adaptation to the context and time in which it operates, also culturally and socially
What advantages it brings to the company
At this point it is clear that Sustainability covers a very wide range of factors in the life and success of the company. In addition to the 7 good reasons we have already written about, here are some aspects that this approach to business management protects:
- ability to generate profits for the long term, therefore the efficiency and effectiveness of its processes throughout the entire Value Chain;
- from negative risks related to rules and regulations, preventing the company from running into sanctions or interruption of its activities;
- contribution to the quality of social life in the communities it affects, including employment and business relationships;
- impact on the environment and ecosystems, both outgoing and incoming; for example, in addition to emissions and waste, the availability of materials and energy over time;
- the company’s reputation and external perception, i.e. the way it is received, for example, by customers in the markets, or by investors;
- relationship with the epoch in which it exists, for example climate change or cultural and social aspects that make it morally “outlawed”.
How to set up a sustainability management
Given the wide range of topics it covers, Sustainability must be managed in an integrated way in all the activities of the company. As the best Risk Management, it has to cover from the definition of the Mission to the operational processes and the end of life of its products. Stand-alone initiatives, so-called “bolt-on” or “random”, besides being destined to failure in most of the cases studied, have no effect. Such approaches, like using sustainability as a marketing mostly tool, only increases costs. Their contribution to long-term business objectives is minimal, when not negative.
A healthy Sustainability Management is:
- An integral part of the way the company operates;
- Integrated into everyday decision-making processes at every level;
- Systematic, structured and timely, contributing to the management of uncertainty in the internal and external context;
- Based on solid information that comes from the collective knowledge management of all the components of the Value Chain, both internal and external;
- Tailored to the company and according to its strategic objectives, in a transparent and inclusive manner;
- It takes into account the human and cultural factors that influence its context and stakeholders;
- Dynamic, interactive and responsive in a timely and appropriate manner to changes in the external and internal operating environment;
- The foundation of innovation and continuous improvement in the pursuit of corporate objectives.
The ISO-based management system
Sustainable Development and Sustainability are at the core of the objectives of the Management Systems, Guidelines and Practices of the ISO galaxy. For this reason, when managed according to these systems, Sustainability is the best Risk Management.
Our Embedded Sustainability Index®, or ESIndex®, has been modeled on this approach. After the first evaluation of the company’s strengths, critical points and priorities, it accompanies it in the continuous improvement of performance.
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