Today, most companies and professionals accept that the physical environment is changing very rapidly which has enormous consequences individually and corporately. (OK, there are the deniers like Trump, nevertheless, the majority of the world (even China) now accepts that we need to change our business models to combat climate change and destruction of the environment.) The problem for companies is how to change direction and their practices. The white paper by Lucy Nottingham, Director, Global Risk Centre, Marsh & McLennan Companies, ‘Unlock Growth By Integrating Sustainability: How to Overcome the Barriers’, tackles this problem head-on.
Eight key takeaways
This report, prepared by Marsh & McLennan Companies’ Global Risk Center with the support of the GreenBiz Group and the Association for Financial Professionals, explores how companies are incorporating sustainability assessments into their financial modelling and enterprise risk management strategies and processes. Ms Nottingham lists eight vital findings from her work:
- The rising pressures of a changing physical environment present a wide array of strategic and operational risks to many companies. Executives must ask themselves: How sustainable is our business, and are our strategies and operations at risk?
- Customers, capital markets, and regulators are increasingly examining corporate sustainability risk profiles. The focus on sustainability and climate-change-related practices will affect both the cost and availability of financing for many companies.
- Companies must identify, assess and respond to the strategic and operational risks and opportunities presented by the changing business environment.
- Yet there are often disconnects between established corporate finance modeling and enterprise risk management processes and the discourse and expertise surrounding sustainability issues.
- Three factors contribute to the organizational gap between finance and enterprise risk management and sustainability: unclear terms, unclear roles and risk responsibilities, and unclear corporate leadership and engagement on sustainability.
- Companies that do not close this gap may find themselves losing ground in an increasingly competitive global marketplace.
- Leading companies have leveraged sustainability initiatives to raise capital and reduce operational costs and volatility.
- Finance, enterprise risk and sustainability leaders must integrate their efforts to provide real value in helping their organizations respond to evolving risks and capture competitive advantages.
The three key actions
The report recommends three key actions for both sustainability leaders, and risk and finance leaders to help companies make progress:
- embed sustainability into strategic planning and enterprise risk management planning processes, see EMC2 case study
- embed sustainability into financial modelling and risk assessment processes
- create a common set of terminology relating risk and resilience.
This all sounds a bit esoteric, but as one CFO summed it up, in today’s business market, “Sustainability is smart business, and is how we are managing our business.”
CTMfile take: We fully support the corporate treasurer who said, “If we’re not sustainable, we don’t have a business. Sustainability is consistent with having a long-term business.” However, sustainability is much more important than this: it is about the future of mankind, not just treasury.
Corporate treasurers: is it time you hedged climate risk?
Two recent news stories suggest that treasury professionals should be seriously considering the impact of climate change risks – and incorporating these risks into their financial risk framework.
Disclosure of climate-related financial risks isn’t enough
Climate risk is increasingly being considered as a key area of financial risk management and reporting for companies. Is this approach simply perpetuating the problem?