It’s great to have both reports published because one can see how Moody’s approaches the data and then the results of applying their assessment standards.
Essentially, the agency looked at direct environmental impacts AND consequences of regulatory/policy impacts, crunched those numbers with materiality and timing projections, and, voila – they’ve published a risk profile by industry of 86 global sectors.
The highest risk sectors are projected to hold more than $2 trillion in debt with material credit exposure to environmental risk.
Which sectors are at the highest level of risk? Of course, coal is up there on the top, but some of the others are bound to surprise you.
Check out Moody’s assessments and let us know if you see any surprises on the high-risk list.
About the Speaker: Harish Manwani joined global consumer products corporation Unilever as a management trainee in 1976; he is now the company's chief operating officer.
About the Talk: Capitalism has delivered some amazing things to society, but also some devastating ones as well. Although we may think that capitalism, and corporations, are all about the bottom dollar, Manwani argues that corporations can, and must, include the “fourth G” in measuring success: growth that is sustainable
We have been providing sustainability consulting services to organizations worldwide for more than a decade. But, we still find that the sustainability journey is just beginning for many. Here is a post from our archives helping define sustainability. Although the videos are oldies-but-goodies, we still see the value in these straightforward explanations.
HOW DO YOU DEFINE SUSTAINABILITY?
The answer is not always simple. Some people think sustainability is a destination, some people think sustainability is a journey (we think it's a little bit of both). Some people like lofty definitions, like these three:
Meeting the needs of the present generation without compromising the ability of future generations to meet their own needs. (Brundtland Commission)
The possibility that human and other forms of life on earth will flourish forever. (John Ehrenfeld, Professor Emeritus. MIT"
Enough - for all - forever. (African Delegate to Johannesburg (Rio+10))
We like those definitions as a rallying call to inspire people to think broadly about sustainability. But they aren't very helpful when it comes to actually putting sustainability into action.
That's the concept of sustainability that we use here at Strategic Sustainability Consulting. But it can still be kind of vague -- difficult to put into specific operation in part because a single organization operating within society cannot, on its own, do all of the things necessary to move society toward sustainability. That's where sustainability strategy comes in.
This video is from Tim Nash of Strategic Sustainable Investments, who is a fellow alumni of the Strategic Sustainability graduate program at Blekinge Institute of Technology in Karlskrona, Sweden (where SSC president Jennifer Woofter also graduated). It expounds on The Natural Step Framework, and explain how strategy becomes part of the process:
So that's it. THAT is how we define sustainability. We believe that these four system conditions provide the foundation upon which we create a sustainable society. And an organization operating within our current unsustainable world must create a strategy to navigate through that funnel to maximize the value it delivers while minimizing the risk of hitting the "walls of the funnel".
Essentially, it is a toolkit for investors to evaluate a company based on climate risk factors not directly related to physical risk. Most investors can already pick out obvious physical risks, i.e. investing in coastal property as sea levels rise. But non-physical, climate-change effected risks are also important.
The WRI discussion framework addresses those risks, called carbon-asset risks. They include public policy, regulation, technology, unpredictable market conditions, and shifting public opinion.
For example, the assessment recommends that investors look beyond carbon footprinting and delve deeper into company supply chain audits that may uncover risks. For example:
Geographic location (are too many of your suppliers in the path of a super-typhoon?),
Local regulations (are the countries your source your raw materials from looking to legislate and increase your costs?),
Diversification in operations or production (are your products and services too dependent on fossil fuels?).
This discussion framework, while absolutely useful for investors, can also be used as a cheat sheet for your own business. Next step: Start auditing and taking action now to mitigate your climate risk.
Reducing exposure to risk is crucial, not only to become more attractive to investors, but also to become a more sustainable organization overall!
If you’re ready to start looking more deeply at your carbon asset risk, contact us to learn more about sustainability assessment and supply chain analysis.
We wrote, “Why You Should Wait to Act On Sustainability” for Environmental Leader. The comments were...interesting, and showed that there was a lot of disagreement about the premise to move more slowly and thoughtfully on corporate sustainability initiatives. But we're sticking to our guns- and we’re very pleased to see more evidence that supports our position.
In the Inc. article, “How to Make Better Decisions: Slow Down”, author Jessica Stillman provides a great round-up of some of the best thinking and ideas regarding fast vs. slow decision-making. Here are some of the highlights:
In their new book, Decisive: How to Make Better Choices in Life and Work, brothers and academics Chip (of Stanford Graduate School of Business) and Dan Heath (of Duke) explore how to eliminate biases and improve the quality of our decisions. One of the biggest decision-making mistakes they tackle is our tendency not to waffle but to decide too quickly. Stanford's Re:Think newsletter explains that the authors devote a considerable portion of the book to the idea of widening your options, advice that may seem at odds with the very definition of decision making.
This is huge insight for sustainability practitioners, who should remember that one of the best ways to widen your options is to engage with stakeholders along the value chain. Don't just ask your green team to come up with great ideas -- ask your suppliers, your customers, your contractors, and your investors.
The goal, in other words, isn't to go fast and eliminate options. It's to slow down and add them. So how do you accomplish this? The key, the authors say, is taking the time to gather information and alternatives. Using devil’s advocates, asking people who have solved similar problems, gathering relevant statistics, and soliciting the advice of friends and family members can all help.
While you're gathering all of this information, it can be helpful to have a structured process in order to capture insights for later review. After all, it's easy to lose track of who said what, emerging themes and where they are coming from, and ideas worth following up on. So take some time BEFORE you begin your decision-making process to think about how you will engage, and how you'll manage the inflow of information.
You might object that today's market moves too fast for such lollygagging. But Heath replies that considering less information rarely actually saves time, either because we make bad decisions (and then stick with the path we've chosen long after we should abandon it) or because we waste time anyway waffling over limited data and alternatives.
Yes! Based upon our sustainability consulting experience, we have found that taking the time to gather lots of options has allowed our clients to make confident decisions and execute them fully -- rather than make half-cocked initiatives that get only partial support or just lip service.
The Heath brothers aren't the only people warning leaders not to be seduced by quick decision making, of course. Nobel laureate Daniel Kahneman wrote a whole best-selling book on the limitations of quick thinking called, appropriately, Thinking, Fast and Slow. If you haven't picked it up yet, it's well worth a read in full and is packed with examples of how our knee-jerk decision-making machinery can lead us astray, as well as techniques to short-circuit bias. But for the quick-and-dirty summary, look to Harvard Business Review, which offers this article on one technique, the premortem, and another article by Kahneman himself outlining the basics of why quick decision making is often bad decision making.
So what do you think? Leave a comment here, or join the conversation on Twitter
I often tell clients that sustainability is not a stand-alone concepts, but a lens through which companies can make good business decisions. It's another set of criteria, another flowchart of questions, that lead to optimal choices.
That said, sustainability is not a perfect lens in and of itself. Sure, there are sustainability concepts and frameworks (like materiality, zero waste, and The Natural Step) that aim to provide guidance on how to think about sustainability, and protocols on how to use sustainability to make decisions. But I find that it's often lackluster -- at the end of the materiality process, or the Natural Step "ABCD process" we often look around the table and say "okay, that seems reasonable, but what does it mean for ACTUAL planning for next quarter? And what does it tell us about changes needed for next year's budget?"
Here is where risk, and it's associated tools, comes in. By marrying traditional risk assessment, mitigation, and adaptation methodologies with sustainability concepts, we can start to answer questions like:
How likely is it that climate change is going to have a significant impact on our operations in the next three years?
How big of an impact is water scarcity going to be for our supply chain in the next decade?
How resilient is our business to labor unrest in Asia?
Of all the options for adapting to increasing sustainability regulation, which ones are likely to be the most effective?
There is SO MUCH WORK to be done at the intersection of sustainability and risk. It's really exciting work, and if you've done any reading on the subject lately, I'd love to hear your thoughts in the comments below!
A dispatch from SSC President Jennifer Woofter
As we work with clients to advance their sustainability journey, we're always looking for ways to slice and dice the information we gather. I thought it might be helpful to share some of the common ways we analyze an organization's performance:
Company Now vs. Company Then
How does the client's current performance compare against it's performance in the past (1 year ago, 5 years ago, etc.). This works best when we've been working with a client for a while and can judge how much progress has been made since our initial assessment.
Company vs. Industry Peers
We look at client performance against a representative peer group -- so for example, a midsize mining company would be compared against other midsize mining companies.
Company vs. Industry Leaders
We look at client performance against the sustainability leaders in the industry -- so we might compare a midsize mining client against the current mining constituents of the Dow Jones Sustainability Index (DJSI).
Company vs. Value Chain Partners
We look at the client's performance against its key upstream suppliers and downstream customers. This analysis provides great insight into risk mapping and alignment -- is the client paying attention to the things its customers care about?
Company vs Sustainability Standard
Comparing a client's sustainability performance against other external standards (ISO 14001, GRI, CDP, SASB, DJSI, etc.) is another way to spot omissions and mis-alignment. It can also help to spot the areas where the standards overlap -- where the client may get the most bang for the buck in closing a gap.
What other ways to benchmark are we missing? Let us know in the comments!