December 19, 2022
Reimagining the Climate Crisis: Private sector strategies for building a sustainability-driven business plan
In this last of a two-part series, Erin Williamson, Manager, Energy & Sustainability Strategy, discusses how the private sector is tackling future climate risk, the value of a sustainability ‘enterprise approach,’ and the role of business leaders in a low-carbon economy. Click here to read part one.
Part II
The inclusion of ESG – specifically climate management – into corporate strategy has been increasingly going mainstream, with more private companies seeking to build sustainability into their business plans as a way to mitigate risk. More than ever before, customers, individual investors, corporate boards of directors, institutional clients, and regulators are pushing for greater transparency regarding companies’ sustainability practices.
With climate change now seen as a global challenge with potential implications across supply chains, national and international policies, and markets, private and public companies alike are seeking strategic approaches as a way to manage risk and take advantage of opportunities in our emerging low-carbon economy.
Many private companies are now starting to explore how sustainability expectations will impact their business and are considering proactive management strategies.
How one private company is tackling future climate risks
An example of proactive corporate sustainability management is Mars, Incorporated – the sixth largest private company in the U.S. Mars considers climate change among its key risks and has taken significant steps to drive a more sustainable future.
The company has identified key customers, suppliers, and stakeholders when pinpointing potential climate risks and opportunities, and has built programs and activities to improve climate resilience in its value chain. For example, agricultural supply chains are critical to Mars’ business, so they have partnered with farmers to implement practices that result in higher yields without growing the land footprint required, supporting Mars’ science-based position on land use.
Companies like Mars that prioritize optimizing for a low-carbon future demonstrate to their stakeholders that they recognize changing conditions and expectations, and that they are planning accordingly to secure their position in the market.
Sustainability as a core business competency
Boards should consider sustainability as a key input to business continuity. From a supply chain perspective, implementing sustainable practices help ensure that companies continue to have access to suppliers and markets that may be impacted adversely by climate change. From a market perspective, establishing alignment with key customers’ sustainability targets and objectives can help solidify commitment to supplier-customer relationships.
Boards can consider appointing a sustainability champion or committee at the board level. Appointing a member of the board with sustainability in their portfolio is a good practice to bolster accountability. That member should establish close contact with the company’s sustainability team, spend time understanding their ongoing work, and identify gaps.
At a minimum, most disclosures suggest that sustainability be on the agenda annually and, according to best practice models, quarterly.
Leveraging existing processes like risk management can create a sense of familiarity, as boards are accustomed to assessing and mitigating all sorts of business risks. Climate can and should be one of them, as well as any other material sustainability risks the company may identify. Building climate and other risks into existing and well-functioning assessment and evaluation processes will mitigate some of the uncertainty around handling climate and reorienting it to familiar territory.
For companies that haven’t yet dealt with sustainability as a core competency, elevating material sustainability issues, such as setting ambitious targets or fundamentally evaluating processes from a sustainability lens, is critical to create buy-in at the board level. Sustainability can be technical and require an integrated approach, making demonstrable commitment from the board imperative.
Fostering an enterprise approach to sustainability
Progress around sustainability invariably requires cross-functional collaboration between business units that may have previously been siloed so that top-down leadership can push the envelope to help create cross-cutting priorities and supporting activities needed throughout a business to decarbonize or operate more sustainably.
Furthermore, developing governance infrastructure is critical to embedding sustainability considerations throughout a company. Having the support of sustainability experts and appointing a board-level sponsor institutionalizes responsibility within the organization. Including sustainability strategies on quarterly agendas keeps those topics front of mind and integrated with other board business.
In addition to the risk and opportunity scenario analysis to evaluate the impacts of various sustainability impacts, other best practices include instituting carbon prices on internal company operations and value chain activity emissions, developing a low-carbon transition plan, and reorienting public/government advocacy to strongly support sustainability policies.
The role of Board leadership in a low-carbon economy
In terms of developing strategic direction on sustainability, boards can engage with consultants like Edison Energy, which works with leadership to deep dive on material issues, benchmark peer organizations, and help navigate the landscape of expectations on sustainability. There are a number of board-level and leadership-level professional organizations that have collaborative opportunities on sustainability, such as Business Roundtable’s policy engagements on Energy & Environment and Corporate Eco Forum, as well as many industry organizations that have sustainability working groups.
As sustainability expectations accelerate and sustainability reporting evolves, stakeholders are increasingly expecting companies to manage and reduce environmental impact, plan for seismic shifts in physical risks like increasing temperatures and decreasing crop yields, and transition risks like carbon taxes or caps on emissions.
Companies need to identify and proactively plan for the risks of a low- carbon future, and recognize the opportunities presented by transforming into a resilient, future-proofed business that is prepared to meet those challenges.
