Sustainability has emerged as a core concept of business and personal life in the 21st century. It is a philosophy that advocates leaving the universe in the same condition at the end of a generation as when that generation began.
From a business perspective, this means achieving financial objectives without sacrificing social or economic values, and doing it in ways that preserve the ability of future generations to enjoy the same lifestyle opportunities.
For risk managers, addressing the emerging risks involving sustainability issues may seem like a daunting task.
Consider the example of a manufacturer looking to build a Far East warehouse facility which was faced with the question of whether or not to remediate a previous industrial site before construction of a new warehouse.
China’s environmental regulatory system is based on national laws but depends on local enforcement. Local officials did not require remediation, and federal laws were uncertain.
Chinese partners opted for no remediation, while the United States executives were concerned about present and future disclosure of their activities and accountability to shareholders if anything went wrong.
Many of the same issues are faced by corporations looking at global expansion in other areas that must deal with unfamiliar laws, cultures, religions and local customs as they enter new territories for manufacturing and marketing.
Other emerging issues of sustainability that are of concern to risk managers include depletion of nonrenewable resources and climate change. Many risk managers do not understand these risks and will require a quick education if the corporations they protect are to avoid serious future consequences.
Basic industries–such as mining, forest products, agriculture and most manufacturing activities–involve the use of nonrenewable resources. So does the generation of electric power that is used by industry and by the general public.
If future generations are to enjoy today’s standard of living, we must balance the use of nonrenewable resources and develop alternatives to the use of fossil fuels to supply the energy needs of a growing world population. Corporations that do not understand the implications of these issues will face increasing difficulty as consumers and industries begin to impose sustainability requirements on manufacturers and suppliers of raw materials, goods and services.
Wal-Mart, for example, has imposed a number of sustainability requirements on its 60,000 suppliers that will force many manufacturers around the world to rethink their business practices. The company is now marketing Marine Stewardship Council certified wild-caught fish in all its retail stores, and will soon stop purchasing seafood from suppliers that do not implement renewable fishing practices.
This is just one of many initiatives in a multiyear, multifaceted crusade that the Bentonville, Ark.-based retailer has launched (detailed on its Web site (http://www.walmartfacts.com/FactSheets/4252007_Sustainability.pdf), with activities ranging from selling sustainable products–like yoga outfits made of organic cotton–to reducing waste by using less and more sustainable packaging (such as corn-based packaging for fruits and herbs).
In purchasing transportation services, Wal-Mart gives preference to operators who show that they are fully engaged in fuel-efficiency efforts. For its own fleet of 7,000 trucks, Wal-Mart has set a goal to cut fuel use by 50 percent within 10 years and has saved itself $24 million in operating costs in the program’s first year.
The company has also banned the purchase of products containing three specific chemicals commonly found in cleaning agents and some cosmetics.
If this trend continues and spreads, manufacturers that do not comprehend and react to sustainability issues will face shrinking business opportunities, while those who embrace these principles will succeed and thrive.
Another area of emerging sustainability concern is global warming, thought to be influenced, in part, by the emission of greenhouse gases from industrial, agricultural and commercial operations. The European Parliament has mandated emissions caps for CO2 in all 25 countries that make up the Common Market.
Trading of carbon allowances has evolved into a formal market that allows underachievers to buy carbon credits from generators that have been able cut emissions.
Most experts expect a similar program in the United States within the next decade. The concern about carbon emissions and an impending power shortage in key manufacturing areas of the United States will result in substantially higher power costs in coming years.
For those companies that are making big sport-utility vehicles instead of fuel-efficient hybrids, strategic decisions that do not account for higher energy costs will have consequences that may start as soon as gasoline prices surpass $4 per gallon.
In the long term, entire industries will be transformed as alternative sources of energy are developed that compete with internal combustion engines and lifestyles that emphasize security and social contacts rather than conspicuous consumption become accepted by significant percentages of the population.
Risk managers that understand and adapt to the emerging risks of sustainability can assure not only corporate survival but also unparalleled success in the coming years of global opportunity.