The pandemic has precipitated a widespread reassessment of the way we live and the way organizations operate around the world. From new ways of working to supply chain disruptions, from negative impacts on customer purchasing power to limited mobility of people and goods, the global business community has come to a never-before-seen standstill. Covid-19 has been a painful test for organizational resilience.

How should we interpret and address these signs and can the pandemic act as a ‘wakeup call’ to drive more awareness of your company’s material risks? There is no doubt that preparedness and a deep understanding of your blind spots are key to building a resilient organization. Now more than ever, comprehensive sustainability strategies are needed to help you achieve that goal.

 

“ […] preparedness and a deep understanding of your blind spots are key to building a resilient organization”

The strong link between resilience and corporate sustainability is not new[1]. Both academic research and business experience point out that companies with robust sustainability strategies outperform their peers with poor sustainability profiles. By adopting a more inclusionary approach to value creation, they are also better positioned to weather adverse conditions.

 

Preparing for risks

Targeted sustainability efforts have a clear positive impact on business performance and, as a result, prepare organizations to surf the wave of change rather than get crushed by it. A complex and unprecedented flood of social, environmental and technological trends are no doubt disrupting entire sectors and sustainability-driven management is key to remain afloat.

 

“A company with a sustainability agenda is better positioned to not only anticipate economic, social, environmental, and regulatory changes as they arise but also deal with them in an efficient manner when they do.”

 

While the pandemic acted as a shock to our system, it is a definite call to action to prepare for – and sincerely address – the wicked problems of systemic inequality and the environmental crisis that looms ahead. For example, McKinsey reports that the value at stake from sustainability concerns can be as a high as 70% of earnings[2]. Organizations need to incorporate sustainability into their DNA to hold themselves accountable and prepare for these growing risks.

A company with a sustainability agenda is better positioned to not only anticipate economic, social, environmental, and regulatory changes as they arise but also deal with them in an efficient manner when they do.

 

Improved Risk Management

The business case for sustainability is irrefutable. Corporate sustainability strategies are shown to boost revenue, cut operating costs and inefficiencies, achieve better borrowing rates, attract and engage more pro-social employees, build customer loyalty, drive competitive advantage, and foster innovation. Echoing some of these points, a study by the University of Oxford found that 90% of the research analysed concluded that good corporate sustainability standards lower the cost of capital of companies and 88% showed that strong ESG practices result in better operational performance of firms. In a similar vain, a study by Dutch Bank ING found that while 87% of the most mature firms in their survey had experienced revenue increase over the previous 12 months, only 67% of those with less integrated sustainability strategies said the same. On the other hand, 65% of the most mature firms had improved their credit ratings over the previous two years, compared with just 51% of the less mature firms.

This long list of factors improves risk management overall and permits organizations to become more future-proof.

One particular shock that has been a focal point in the pandemic, supply chain fragility, highlights how CSR strategies are effective at building resilience. Supply chain interlinkages have intensified over the last few decades so it comes as no surprise that 78% of organizations across the U.S and Europe have noted significant supply chain disruptions since the beginning of Covid measures. As a result, organizations recognize the high risks of single sourcing and the fact that they are often blindsided by the impacts on second- and third-tier suppliers.  Weaknesses in companies’ sourcing strategies can be tackled through a sustainable procurement diagnostic, done through scanning methodologies such as the one proposed by EcoVadis.

 

Stronger Financial Performance and Trust

The latest research by investment management firm Blackrock suggests that Environmental, Social and Governance (ESG) characteristics indicate resilience during market downturns – refuting conventional assumptions. Finding a strong correlation between sustainability and traditional factors such as stock quality and low volatility, they argue that sustainable companies are more resilient and outperform their peers during downturns. This reinforces previous findings by Arabesque, showing that 80% of studies on the subject show that stock price performance of companies is positively influenced by good sustainability practices.

Amidst the cycle of booms and busts and the economic shock caused by the pandemic, investors have rushed to sustainable assets. In Q1 of 2020, 94% of sustainable indices in BlackRock’s analysis outperformed their parent benchmarks. This a hugely compelling data underscoring not only the resilience of these businesses, but also the value investors are placing on sustainability. Traditional financial risk diversification must therefore prioritize ESG risks, which is good news for firms with strong profiles on material sustainability issues.

 

“Amidst the cycle of booms and busts and the economic shock caused by the pandemic, investors have rushed to sustainable assets.”

 

Resilience and Sustainability

There is clear financial wisdom in embracing corporate sustainability practices at the core of business strategy, management and decision making. Those companies that proactively embrace sustainability will drive innovation and engender enthusiasm and loyalty from employees, customers, suppliers, communities and investors.

Embracing corporate sustainability will not only reduce downsides and increase upsides, but also permit your firm to become more resilient in the face of uncertainty.

 

Get in touch with one of our team members to discuss how your firm can best develop your corporate sustainability strategy by emailing info@nexioprojects.com or take a look at our services on our website.

22/06/2020 – Rotterdam

author Covid resilience

Felix Keser – Chief Strategist & Alliance Manager

 

References

Porter, M. & Kramer, M. (2001) Creating Shared Value. Harvard Business Review.

Bonini, S. & Shwartz, S. (2014). Profits with purpose: How organizing for sustainability can benefit the bottom line. McKinsey & Company.

BSR (2017). Redefining sustainable business: management for a rapidly changing world.

Whelan, T. & Fink, C. (2016). The comprehensive business case for sustainability. Harvard Business Review.

ING (2018). From Sustainability to Business Value: Finance as a Catalyst.

Delmas, M. A., & Pekovic, S. (2013). Environmental standards and labor productivity: Understanding the mechanisms that sustain sustainability. Journal of Organizational Behavior, 34(2), 230–252.

Cha, M.-K., Yi, Y., & Bagozzi, R. P. (2016). Effects of Customer Participation in Corporate Social Responsibility (CSR) Programs on the CSR-Brand Fit and Brand Loyalty. Cornell Hospitality Quarterly57(3), 235–249.

Deloitte (2013). Sustainability Driven Innovation Harnessing sustainability’s ability to spark innovation.

Clark, G., Feiner, A. & Viehs, M. (2015). From the Stockholder to the Stakeholder: how sustainability can drive financial outperformance. University of Oxford & Arabesque.

Hildebrand, P et al. (2020). Sustainable investing: resilience amid uncertainty. BlackRock.

[1] We define corporate sustainability as organizational practices that focus on improving environmental, labour and human rights, ethics and sustainable procurement performance in the areas in which the company or brand has a material environmental or social impact so as to create value for all stakeholders.

[2] Before interest, taxes, depreciation, and amortization.