ESG Alignment, Resilience and Strategic Risk
2nd International Conference of the Institute of Company Secretaries of India Overseas Centre
By Professor Colin Coulson-Thomas
Environmental, Social and Governance considerations are inter-related. They should be consistent and complement and re-enforce each other. The challenge for many boards is to align and integrate them. Sustainability and collective survival in the face of shared existential threats could be integrating factors.
This year’s World Economic Forum global risk report is dominated by inter-related environmental risks (1). The top three ten-year risks are failure to mitigate climate change, failure of climate change adaptation and natural disasters and extreme weather events. They are followed by biodiversity loss and eco-system collapse and large-scale involuntary migration.
The nature, scale and impact of these challenges suggest that individual corporate responses may not be sufficient to address existential threats. Collective effort and collaborative responses are required at a time when the world is divided and fragmenting.
Our collective survival cannot be assumed. Scientific evidence suggests we are not doing enough (2-6). Negative externalities persist. Natural capital and rare minerals are being depleted at an alarming rate.
Current operations, activities and lifestyles are unsustainable. Yet further growth is pursued. Virtual worlds and alternative realities are explored while the natural world degrades. Windows for action before existential threats become unstoppable are rapidly diminishing.
Our activities and infrastructures must become more resilient. To confront reality, greater resilience should become a shared aim. We must become more flexible and resilient. We must adapt, respond responsibly to challenges and seize sustainable opportunities. Helping people, organisations and/or communities to adapt and cope represent unprecedented opportunities.
Hitherto, our responses have been too little, too late. Too many people and some countries focus on their self- and short-term interests. Sustainability challenges, existential threats and strategic risks are a consequence of collective human activity, aspirations and lifestyles.
Boards should provide responsible leadership and purpose and priorities that attract, engage and inspire. Could the shared goal of survival in the face of existential threats such as climate change provide a unifying purpose and priorities? Could UN sustainable development goals engage and inspire?
Strategies and investments should be responsible, sustainable and resilient. Resilience is the ability to cope with and recover from challenges, crises, the unexpected and difficult situations, and also remain operational and viable. It requires vigilance and continuing adaptation to changes in a company’s situation, circumstances and context.
Increased connectivity creates greater cyber vulnerability. Cyber, financial and other forms of resilience should be stress tested. Could we cope with interruptions to certain supplies or the loss of key customers? Are there vulnerabilities in mission critical processes? Do contractual arrangements lock us in, or lack flexibility?
Are too many corporate eggs in too few baskets? Rather than specialisation and concentration, might diversification reduce risk and increase resilience?
What back up and/or alternatives are available? Are ‘Plan Bs’ in place? Have different scenarios been explored or tested?
Multiple suppliers can reduce dependence upon a single source. Should activities be repatriated or re-shored, and supply chains shortened?
Should innovation be risk-led? Risk management should embrace environmental, contextual and shared risk. Prudent and responsible boards avoid activity and investments in countries with authoritarian regimes and differing geopolitical perspectives, allegiances and views on the protection of IP.
Overall, there should be more focus upon sustainability, addressing existential threats, and enabling collaboration and collective responses. Collaboration can unlock circular economy opportunities. Collaborative advantage is becoming as important as competitive advantage. It and trust can depend upon ethics and values.
When I qualified as a chartered accountant and chartered secretary the emphasis was upon integrity. It was the top personal quality sought in company directors (7). Boards looked for members and advisers who would exercise independent judgement and ‘do the right thing’.
More recently, an illegal, unprovoked and brutal invasion of a neighbouring country has been seen by some as a business opportunity.
Company secretaries used to be viewed as a corporate conscience. Today the future of the professions is uncertain.
AI applications can remain up-to-date, handle complexity and address regulatory and reporting requirements more quickly than most professionals. However, they optimise without value judgements. AI and current challenges raise moral and ethical questions.
Values and integrity could be your differentiators. You could influence action on negative externalities and encourage more responsible, healthier, less stressful and more fulfilling lifestyles. You could help boards to initiate transition and transformation journeys to more sustainable operations, communities and societies.
Finally, you could advocate living in harmony with the natural world. Indian and other ancient wisdom reveres nature (8-9). Respect it and your heritage.
References:
(1) WEF (World Economic Forum) (2023), The Global Risks Report 2023, 18th Edition, Cologny, Geneva, World Economic Forum, 11th January
(2) IPCC (2022a), Climate Change 2022: Impacts, Adaptation and Vulnerability, Working Group II Contribution to the IPCC Sixth Assessment Report, Geneva, Intergovernmental Panel on Climate Change, 28th February
(3) IPCC (2022c), Sixth Assessment Report: The numbers behind the science, Geneva, Intergovernmental Panel on Climate Change (Working Group II), Geneva, Intergovernmental Panel on Climate Change, 28th February
(4) IPCC (2023), AR6 Synthesis Report: Climate Change 2023, Geneva, Intergovernmental Panel on Climate Change, March 20th
(5) UNEP (2022a) Adaptation Gap Report 2022, Too Little, Too Slow, Climate adaptation failure puts world at risk, Nairobi, United Nations Environment Programme
(6) UNEP (2022b), Emissions Gap Report 2022, The Closing Window: Climate crisis calls for rapid transformation of societies, Nairobi, United Nations Environment Programme, 27th October
(7) Coulson-Thomas, Colin (2013b), Integrity in Business and the Boardroom, Effective Executive, Vol. XVl No. 2, June, pp 13-19
(8) Baindur, Meera (2015), Nature in Indian Philosophy and Cultural Traditions, New Delhi, Springer India
(9) Coulson-Thomas, Colin (2019), Ancient Wisdom, the Natural World and the Environment, Abhinava Prabandhan, International Research Journal of Indian Ethos & Wisdom for Management – ‘The Vivek Management’, Vol. 7, Combined Issue I & II, May, pp 1-8
*Prof (Dr) Colin Coulson-Thomas, President of the Institute of Management Services is Director General, UK and Europe of IOD India, a knowledge partner of the 2nd International Conference of the Institute of Company Secretaries of India Overseas Centre