What Is Sustainability Risk?
Traditional structures of the supply chain should be long gone. In this era, organizations must now look beyond conventional constructs and consider environmental impacts and social responsibility when strategizing business models.
Business leaders often invest so much in the day-to-day operations that they overlook environmental and social factors. Thus, it’s important to understand sustainability risk to appropriately identify issues and establish practices that will enhance the viability of supply chains.
Sustainability Risk Defined
Sustainability risk is defined as the exposure to practices that negatively impact the environment and the people involved in the supply chain. Climate change, water scarcity, disease, and poor labor conditions are some key factors that increase sustainability risk.
For example, a water shortage can cause significant disruptions and losses in the supply chain. It can cause a decline in profit and the well-being of the surrounding communities affected by the deficiency. In addition, climate change can decrease crop yields and produce commodity price fluctuations.
With the failure to act in accordance with environmental and social responsibility, sustainability risk is commonly manifested in the following ways:
Causing environmental damage
Compromising human rights or labor rights
Threatening occupational health and safety
Strategizing for Long-term Growth
The quest to combat sustainability risk has been shortsighted. Many leaders fail to understand that sustainability efforts create a positive impact on business performance. For example, many suppliers recognize that climate change presents risks that significantly impact their production, yet most of them fail to take action.
According to a report by CDP, out of 4,005 global suppliers, 72% of participants said that climate change presents risks that can impact their operations and profit. But only about half of them actually integrated sustainability issues into their business strategy.
Acting upon these risks fosters corporate social responsibility; it builds a sense of accountability in an organization. Unlike traditional forms of business risk, social and environmental risks spread over a longer term. They permeate through several different levels of the supply chain and can cause disruption, safety incidents, and non-compliance fines.
Therefore, it’s crucial to understand them in order to construct viable policies that keep up with the tides of environmental changes. In other words, you can implement sustainability risk management practices.
Sustainability Risk Management
It’s vital to incorporate sustainability risk management today to plan for long-term growth. This involves planning and communicating social and environmental responsibilities. These duties create viability by aligning environment policies with profitable goals.
Understanding sustainability risk will help raise relevant topics and questions such as:
What does the future demand look like, and are there enough resources available?
How will these resources evolve with climate change?
What are the potential safety considerations of ongoing and future projects?
How will the changes affect the livelihood and health of employees?
What Are the Benefits of Practicing Sustainability Risk Management?
Incorporating the right practices to mitigate sustainability risks provides opportunities to grow and make the right connections.
1. Building a Positive Reputation
When organizations consider issues such as water scarcity, human rights, and air quality, not only will they build resilience within their operation, but trust among their employees and customers. Moreover, by upholding environmental and social values, this can potentially open doors to partnerships with other organizations that share similar values.
2. Connecting with the Right Suppliers
By standardizing on sustainability strategies, you can scope out the right suppliers to work with. They must have a history of sustainability assurance. You want to make sure that you are working with the right people and that their values align with yours.
3. Helping Leaders Be Accountable for Their Employees
You want to make sure that any changes uphold the health and safety of the individual. When workplace safety is threatened, not only are there losses for the company, but it destroys the livelihood of employees.
4. Avoiding Losses by Identifying Risks
By using risk management software tools, you can identify sustainability risks associated with current and future projects.
As our planet is rapidly changing, we must be aware of how supply chain operations will affect our environment and the individuals involved. It’s important to continually design practices that reflect environmental and social responsibility and will yield profitable results. Again, it is no longer enough to operate within traditional realms—organizations must look ahead.
Avetta understands that managing risks is key in growing a sustainable business. Learn more about what Avetta can do for you. Through our contractor management services and prequalification services, we help clients identify and manage risk in their supply chains.
To learn more about how Avetta's Connect Platform can help your company mitigate risk in your supply chain, visit avetta.com, email [email protected] or call 844-633-3801.