Being a responsible business leader means being proactive. You must identify risk and respond lest a problem catches you unawares. Lots of people are generally good at this in specific areas. It could be industry awareness, a mental red flag that pops up when a customer says certain phrases, a regulatory monitor for the company, etc. What seems to go overlooked, however, is the way that sustainability issues present major, macroeconomic disruptions to business.
There are a few different areas of risk that could be mentioned: supply chains, labor, home environment, and regulatory risk. Each may be more or less relevant to your business. For example, as a consultant, I don’t spend a lot of time worrying about my own supply chain. I have no products that rely on physical delivery. I do, however, pay attention to the regulatory changes related to sustainability. This is why many sustainability analysis tools focus on areas of impact, but it is worth having a basic sense of the world overall, even if it does not directly relate to you.
Our first focus is supply chains. As exemplified by the recent tariff drama, no supply chain is free from external influence. Operating in the 21st century often means a deeply complex route from Point A to Point B, and the more complex that path is, the more opportunities exist for it to be disrupted. Climate change means more and worse extreme weather events, posing challenges for shipping and sourcing. A shifting geopolitical situation, which will also be impacted by the effects of climate change, pollution, and biodiversity loss, can determine the rise and fall of whole industries. Dependability of the environment for farming becomes more precarious as biodiversity falls and species are more susceptible to disease, as well as the drought and flooding increased by climate change. The number of issues seems to go on forever. Diligence is essential for being able to respond and adjust as needed.
There are potential risk areas at home as well. After all, every point in a supply chain is a place where people live and work, and they must then be paying attention to the risks of their business. The specific social and environmental context of your business impacts revenue, employment, and long-term viability. Some businesses are able to shift around as needed, but if you are a ski resort, you can’t pack your bags and move when the snow stops coming. And it is hard to outrun major news like a recession.
A key piece of all of this is labor. Keeping an eye on the challenges that workers face up and down your value chain, and especially at home, where you have the most influence, is essential. You cannot operate your business without people to create and purchase the value. It is by developing strong stakeholder relationships that you can address this risk. If you operate in an area with few childcare options, your employees will be challenged by that, and you must respond. If they can’t find housing, you will struggle to find workers. If the society does not invest in education, then that burden will fall to the employer to provide professional development or be forced to rely on an untrained workforce.
So, what to do?
To start paying attention to risk, it is essential to do a materiality assessment. This is where you go and talk to stakeholders and do research to find your major impact areas. Where are you vulnerable? Where are the people you rely on vulnerable? If your customers are facing a higher likelihood extreme weather events in the next fifty years, you need to be prepared for that. If your suppliers aren’t sure how to respond in a shifting geopolitical landscape, you need to build those relationships to navigate the changes.
Internally, develop systems to alert the company and relevant employees when something changes. This is a combination of assignments to people, such as an HR professional who monitors employee needs, and automated or digital tools, such as alerts on different news feeds. No matter your approach, maintaining strong stakeholder relationships will be an essential asset in both noticing and responding to risk.
If there is an industry level threat, then talk to your competitors as well. See if there are partnerships or cooperative initiatives that can lower risk for everyone, keeping the industry alive. These relationships can drive innovation, guide informed regulation, and create clarity in complex situations.
Once you know your risks, you must be careful not to make them worse. If climate change threatens your business (and as a macroeconomic impact, it will), you have a strong incentive to take action against it, reducing your emissions to zero and helping the systems around you adapt.
The Future Fit Foundation, which assists businesses with advancing a vision of society where humans the planet flourish now and into the future, offers a free risk profiler tool to give companies an idea of what they face on a number of issues, ranging from water to ethics. Sustainable business management tools, like Spearpoint Strategies partner Ecolytics, also help with risk identification and management.
A key takeaway from sustainability work is the importance of systems thinking. Nothing happens in a vacuum. To properly analyze risk, you must keep track of as many factors as possible and understand their relationships. Furthermore, allow your awareness of risk to develop into a sense of opportunity. When you see potential problems, you can develop the first to market solutions to address them.