Harnessing ESG for Resiliency and Growth
In the world of business insights, much attention is lavished on the notion of fostering disruptive business models, aiming to shake up markets and carve out unique competitive niches. Yet, overshadowed by this buzzworthy narrative lies another, more sobering disruption: the escalating frequency and intensity of disruptions to business and economic activities due to relentless global turbulence. The World Economic Forum's Global Risks Report clearly illuminates this truth, attributing the majority of potential crises to ESG-related factors. This stark reality underscores the imperative of adopting new mindsets to fortify business resilience and find new avenues of opportunity in the face of mounting challenges.
“[T]he majority of respondents (54%) anticipate some instability and a moderate risk of global catastrophes, while another 27% expect greater turbulence...The outlook is markedly more negative over the 10-year timeframe, with 63% of respondents expecting a stormy or turbulent outlook and less than 10% expecting a calm or stable situation.”
Broadening the Scope of Resilience
Traditionally focused on just climate adaptation, resilience now demands a more comprehensive approach encompassing economic, social, and governance factors. This expanded view, validated by responses to the COVID-19 pandemic, illustrates the critical need for businesses to adopt holistic preparedness strategies. During the pandemic, in effect, every company became a “covid company,” needing to rapidly deploy new processes and ways of operating. Instances like grocery stores adapting to “dark” delivery models and distilleries shifting production to manufacture disinfectants highlight the imperative for flexibility and innovation in business operations.
Integrating ESG principles into resilience planning can not only address immediate environmental risks but also strengthen organization’s social cohesion and governance practices, fostering a culture that embraces challenges in order to capitalize on opportunity. History shows that businesses as different as Kellogg and Netflix that chose to innovate during crises—the 1929 stock market collapse and 2007 Great Recession respectively—reaped substantial benefits. In the current environment, this translates to every company becoming an “ESG company”, or needing to embrace ESG principles as core to their resilience strategy.
The Business Case for Resilience
Companies integrating ESG into their resilience frameworks often find themselves better positioned to adapt to change, recover from setbacks, and even transform challenges into opportunities for growth and innovation. In general, companies with strong ESG policies weathered the pandemic better than those who lack such policies and were forced later to react. Companies with higher ESG ratings performed better and were more resilient during the outbreak of the coronavirus pandemic compared to those with lower ESG ratings.
The argument for prioritizing resilience—and the role of ESG within it—is bolstered by compelling evidence of its financial benefits. Investments in resilience can significantly reduce operational disruptions, decrease insurance costs, and improve a company’s performance over the long term.
By proactively engaging with supply chain partners, North Face improved overall efficiency and environmental responsibility of its value chain, including developing systems for more sustainable fabric production. This strategic overhaul, coupled with strengthened e-commerce capabilities amid the pandemic, allowed the company to adapt to changing consumer behaviors and maintain its commitment to quality and environmental stewardship.
Regarding cybersecurity—an ESG topic often falling under both S and G—the shipping company, Maersk, overcame a devastating malware attack in 2017 by fostering new operational resiliency methods, such as more open communication, agility and resiliency training for its leaders. This led to a revamped strategy emphasizing automated detection, effective response and company-wide cyber-awareness.
Moreover, a strong resilience strategy can boost stakeholder trust and brand reputation, offering a clear competitive edge in today’s market. For example, Toyota's response to the 2011 Thailand floods, which severely disrupted its production, illustrates the success of embracing resilience; by decentralizing production, enhancing supplier transparency, and diversifying procurement, Toyota significantly strengthened its supply chain against future extreme weather events and their economic impacts.
By embedding resilience into their operations, companies are preparing for the uncertainties of tomorrow, ensuring continuity amidst challenges. Simultaneously, forward-thinking firms are seizing the untapped potential of new markets, such as the net-zero emissions market, projected to be worth trillions by 2030. This approach not only mitigates environmental risks but also unlocks new revenue streams, positioning these businesses at the forefront of the transition to a sustainable economy. Through this strategic lens, resilience becomes an engine for growth, driving both stability and innovation as businesses and the global landscape evolve rapidly.
Embracing a Future-Proofing Strategy
The integration of ESG principles into business models is not merely about navigating current challenges; it's about reimagining the future of business. By prioritizing resilience and leveraging ESG methods as a strategic tool, companies can not only withstand the complexities of today's global landscape but also position themselves for sustained success and innovation. The path forward is clear: businesses must adopt an ESG-driven approach to resilience, transforming potential vulnerabilities into avenues for growth and leadership in a new business era.
Realizing ESG's Full Potential
It’s not just about surviving in a rapidly changing world, but how to thrive. Partner with us to explore how an ESG-approach can help integrate resiliency into your operational and strategic planning.
