Corporate exposure to Sustainability and CSR

We can expect major changes to happen over the coming years regarding global issues including climate, energy, water, conflict etc. The challenge for companies and other organisations is to translate the global issues into what they really mean to them in terms of risk and opportunity. Only when you have done that analysis , CSR related activities that an organisation undertakes can be really business driven.

Below I have put together a list of different types of exposure to sustainability related global issues. I hope this list can be helpful when you try to work with the issues in your organisation.

2

Resources

Clearly, how companies look upon resources will have to change over the coming years.  Fossil fuels dependency is a big risk for companies these days. We have seen how the oil price went haywire during the last year and fossil fuel prices are likely to increase rapidly over the next few years. We have written about this several times earlier on the blog. Peak oil is a reality.

Energy dependency in a broader sense is also critical to assess. Electricity is likely to become more expensive as we transition to renewable sources for energy, but the need for electricity is still likely to increase dramatically as we shift away from fossil fuels, not least in the transport sector. We can expect high volatility also in electricity prices.

Other raw materials dependencies are also important to examine. Raw materials prices of many kinds have had a dramatic price increase before the economic collapse.  The background is that many metals and minerals are rapidly becoming depleted. The sources will have to change to recycled waste to a much larger degree, and this will add cost.

On a global level there is a geo political power game where different countries are trying to get in control of depleting resources, and not just oil.

Fresh water is also a resource that is becoming increasingly scarce, for many reasons. Overuse due to growing populations, larger consumption per capita as well as  increasing pollution and the impact of climate change on water sinks like glaciers. The growing concern over water resources will changed behaviour and usage among consumers and companies.

Finally, ecosystem dependencies are also a form of resource dependency. Currently about 60% of the worlds ecosystems are seriously threatened by overuse, pollution, climate change and other negative factors. Ecosystem services is a concept for how companies may work with their ecosystem dependencies to define strategies and risk mitigation. In the large Millennium Ecosystem Assessment, 20 services that ecosystems provide to humanity were defined in the categories: provisioning services, regulating services, cultural services, and supporting services.

Climate Change

We are all affected by the changing climate, indirectly. It will impact ecosystems, extreme weather, water resources, global migration streams and many other things. But companies may also have a direct exposure to a changing climate. This would include, e g, companies working with tourism in affected areas or companies selling products to be used in a particular climate.

Legislation

Government regulations and legislation of different kinds are government responses to address the issues. This has a very direct impact on companies. It is important to understand the trends regarding legislative action among governments, both local, regional and global. Cap and trade systems for CO2, environmental taxes, requirements on reporting are just a few examples of regulations from governments.

Consumer pressure

As consumers are becoming increasingly aware and concerned with environmental problems, human rights issues and health aspects, these questions are increasingly impacting consumer choices. Consumers require more transparency regarding products and they are increasingly selecting ecological, fair traded and healthy products. The consumer trends in different segments and markets are very different, but the changes are rapid and they have to be understood.

NGO pressure

Ahead of the broader base of customers, there are many interst groups and NGO’s that will act more agressively towards companies that they believe are acting unethically. Activist groups also know the importance and power of the media, and work closely with media to create a big impact. But activist groups also collaborate with companies that are proactive in addressing important issues, and they may help with expertise and positive publicity also.

Media coverage

The media are constantly looking for news stories. It is typically easier to create an interesting story around a “bad guy” than around the “hero”.  It is easier to find what your company have done wrong, than to describe what you have done right in an interesting way. Companies need to understand these dynamics and work with PR and marketing to give a representative yet positive image of  the company regarding these issues.

B2B Customer requirements

Not only consumers change their requirements regarding products and services. Since most organisations have an interest in reducing their footprint regarding environmental and social issues, they are increasingly putting the same requirements on their suppliers. Many governments are setting standards for “green procurement”, this is rapidly increasing also in the private sector.

New tecnologies and innovation

The rapid changes are also stimulated by new technologies and innovations providing new possibilities. Companies need to scout for new technologies and innovations to stay competitive. This is especially true regarding energy and environmental issues, where new technologies are being introduced very rapidly.

Competition

I the end, everything in a company needs to defend your competitive position. It is not sufficient to do what is required by legislators if your competitors are gaining marketshare by doing more. You have to understand how rapidly your industry is moving regarding CSR and sustainability and stay ahead. The most successful companies are clearly using these questions to strengthen their competitive position by being very proactive. This is true for both big and small companies in many industries, and there are many good examples to look at.

Investor preferences

Investors are also using sustainability issues to determine where to put their money. We have reached the third wave of sustainable investing. The first wave was focused on negative screening. Basically avoiding companies involved in questionable business, and thereby lowering investor risk. The second wave was centered around finding best-in-class performance regarding CSR aspects and integration in the company. There is a clear correlation between financial growth and the quality of the CSR approach. The third wave is looking for companies that bring a higher degree of sustainability to their customers. Companies that try to be a part of the solution by addressing these issues in a bigger perspective than just their own impact.

As you can see, the investor perspective goes hand in hand with the other perspectives above.

I hope this helps you forward. See you soon!

/Niclas

Advertisements

2 Comments

  1. Posted February 19, 2009 at 6:22 pm | Permalink

    Excellent, thoughtful points that clarify many of the key drivers for CSR and corporate sustainability. This article supplements your thoughts by identifying some of the key benefits of corporate sustainability and CSR programs.

    • Posted February 20, 2009 at 10:01 am | Permalink

      Thanks Jabeen! Very well structured. Your company seems to be involved in a lot of interesting projects. It would be nice to discuss sometime. I would love to see you at Globe Forum 2009! Maybe we could help each other. I believe there are a lot of companies in need of your services at the forum.
      Cheers, Niclas


Post a Comment

Required fields are marked *

*
*

%d bloggers like this: