Sustainability and Resilience: A Shotgun Wedding?
Design
By Dr Peter Williams chairs ARISE-US. His background includes 30 years in IBM, where he became an IBM Distinguished Engineer, and extensive experience in creating DRR tools such as the UN City Disaster Resilience Scorecard and its many offshoots, now used by hundreds of cities (and countries) globally. His PhD is in Politics.
Companies today are grappling with requirements to disclose their impact on the environment, and equally, the impact the environment may have on them - in the form of climate risk - today and as global warming and urbanization continue into the future. Disclosure requires the marriage of sustainability concerns with resilience (specifically "climate resilience"), and it's safe to say that many companies are not yet ready for such a commitment.
Regulators are wielding the shotgun. The European Union's Corporate Sustainability Reporting Directive (CSRD), affecting over 50% of the Fortune 1000 companies, mandates reporting on the impacts, risks and opportunities of climate change; the State of California's Climate Corporate Data Accountability Act (SB 253) and Climate Related Financial Risk Act (SB 261) between them impose a similar mandate on any company with revenues of more than $500m that does business in the state; and in the US, the SEC has made a similar regulation with The Enhancement and Standardization of Climate-Related Disclosures for Investors. While the SEC has for the time being limited its scope to companies' own operations, the EU and California regulations now require companies eventually to report for their global value chains, upstream (supply chain) and downstream (products in use, end of life), as a condition of doing business there. All three sets of regulations elevate disclosures of material environmental impacts, risks and opportunities to the same level as disclosure of material financial factors ("double materiality"); those disclosures will need to be attested with the same standards of diligence as that with which the company's financials are audited; and companies willfully failing to disclose something material face heavy penalties.
Thus, sustainability and resilience are being forced down the aisle together. As the altar gets closer, several significant practical issues arise:
International treaties and policy frameworks from the UN and others on sustainability and resilience overlap and collectively do not provide complete coherence on the subject.
The term "climate risk" logically excludes seismicity and also man-made risks (terrorism, malfunctions), and may thereby bifurcate what should really be a single risk management endeavor in each company.
While sustainability and resilience are effectively the same in the long term (in as much as an organization that is not resilient ultimately will not be able to sustain itself), in the short run there may need to be tradeoffs. A company (or government) seeking to make its location more resilient may need to resort to engineered methods (concrete and steel) or buffer stocks, which are less sustainable; conversely, it may invest in forms of sustainability that are less resilient - for example, relying on green infrastructure for flood protection when additional engineered methods may also be required. Balancing these concerns within a single risk management framework is for most companies, a new endeavor.
National and local governments do not always understand the relationship between sustainability and resilience and may issue guidance or regulation on one or the other that conflicts.
Most companies today manage their sustainability through one team, perhaps in its own department or in the real-estate or supply chain functions; and their risk/resilience through another, often located in the finance or legal functions. These teams have different reporting chains, different targets and different metrics, and there would have been no perceived reason, until now, to ensure uniform governance and compatibility of practice.
ARISE-US will soon (late 2024) be issuing guidance on how companies can ensure that this forced marriage ends happily ever after. The guidance will analyze the policy frameworks and then suggest analytic and management approaches to the problem that companies can use, based on our own research and interviews with forward looking companies. If you would like to be sure to receive this, please email me, Peter Williams, at rpwilliams@gmail.com.
