5 Tips for Managing Sustainability Risks

Sustainability is the concept of managing an organization considering environmental, social, and a broad range of economic factors – and the external reporting on progress on all three “bottom lines.”  CEOs may not recognize the risks that sustainability can pose to their organizations.  Here are 5 risks and how they can be managed.

1. Suppliers engage in business practices that could embarrass you – or damage your business.    

What if your suppliers are on the news for sourcing from a factory in Bangladesh that collapses?  In response to revelations about practices in their supply chain in the 1990s, Nike developed a substantial program for monitoring supply chain work practices.  Still, the number of suppliers is so vast that Nike (and other companies) still faces petitions to remove slave labor from the supply chain for cotton.   Every sector and every company has its own unique supply chain sustainability risks.

Tip:  Develop and manage supply chain risk management programs.  Begin with suppliers that are most critical to your business continuity and success.  Pool resources whenever possible, such as with trade organizations.  Use third-party monitoring programs that use rigorous processes and are widely-recognized.

2.      Compliance requirements are not identified, resulting in penalties, inability to sell products, or loss of customers.    

There are hundreds of regulations affecting issues ranging from energy efficiency to conflict minerals in products.  States and cities have enacted green building ordinances. California is among the more progressive states with regulations at state and municipal levels.   Executive Order 13514 requires the U.S. government to pursue and report on sustainability goals; similar provisions are becoming common in requisitions for government contracts or services.

Companies that do not identify and fulfill these compliance requirements can be shut out from new customers, or disqualified from government contracts.  There are even more – and more difficult requirements – in other countries, notably countries in the European Union.

Tip:    Track compliance requirements. Use specialists familiar with environmental, social and sustainability regulations to identify applicable requirements.  Some resources can help you recover investments in energy efficiency (such as through the Department of Energy).  Even if something is not a regulatory requirement in your jurisdiction, it could be soon.  Consider these as trends.

3. You cannot support claims and assertions for your products or services.  

If you make claims that are not supportable, you could run afoul of Federal Trade Commission Green Guide standards, or be targeted by your competitors for lawsuits.  If customers believe you are green washing, this can result in lost sales and serious damage to your brand.  There are over 400 “eco labels” that convey various benefits.

Companies think up other ingenious claims and assertions for their products, from nutritional benefit to eco-friendliness.  Claims appear in branded company marketing, and less formal ways, such as management presentations and social networking sites.   Companies do this because sustainability has proven to attract customer attention – and dollars.  If companies knowingly make claims that are not substantiated, and the intention is to reap financial gain (market share, bonus compensation), this begins to look a lot like fraud, which is subject to vigorous enforcement.

Tip:   Make sure executives, marketing, and management at your company are aware of sustainability labels, how sustainability claims and assertions can be used, and the associated risks.  Develop good systems and controls to support your company’s or products’ environmental or sustainability attributes.  Use professional resources to assess how well these claims can be supported.

4.      Post-consumer issues result in increased costs or damage to your brand. 

Your customers will eventually be finished with your product – then what?  There are product take-back systems now for tires, used motor oil, recyclable and disposable batteries, and fluorescent light bulbs.

There are regulations in the European Union that mandate how electronic products must be removed from service and dismantled, and recycled.   If your products (or the packaging for your products) become the next target for actions by customers or retailers, your products and brand could be at risk.  Product take-back requirements are likely to increase, as is the attention on the environmental fate of products after their use.

Tip:  The term “cradle to grave” was used when the U.S. passed hazardous waste regulations.  After many waste disposal sites leaked (and as landfill space has become scarcer), the term “cradle to cradle” is now the norm.  Think about what happens to your products when customers are finished with them.  Can they be reused or recycled?  Can you design products or packaging less impacting on the environment?  Better long-term environmental properties, such as compostable tableware, could be a market advantage.

5. You lose intellectual property.   

Companies can find innovative ways to reduce energy consumption, compile and manage environmental or social data, deliver reports to stakeholders, or compile data on how sustainability information is used.

Each of these innovations can help a company be more effective in identifying trends, and improving market position and brand image.  Too often, excited managers and employees trumpet these innovations far and wide – after all, “transparency” is a core principle of sustainability.  Alas, you may have just given away competitive advantage – and some of your competitors may be in better position to leverage these innovations than you are.

Tip:   Recognize when innovations in environmental, social, or economic issues could be considered intellectual property – and then manage it as such.  Stakeholders (including competitors) are calling for transparency for a reason – they want your ideas!  Convene sustainability innovation task forces to identify many ways these ideas can be developed fully – and quickly – and how you can turn these ideas into market share, brand enhancement, or other advantage.

These tips seem simple enough, but they can be surprisingly difficult to do.  Companies use standard risk management frameworks for a broad array of risks.  Sustainability covers a wide range of issues; it is precisely for this reason that standard business frameworks can be invaluable to manage sustainability risks – and to identify and leverage opportunities.

Reach out to resources that understand the fast-paced world of Sustainability, business fundamentals, and risk management.

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