Risk Management

Sustainability as a driver of business ethics

Within the last year, we have seen many examples of reputational damage to individual and corporate brands, the most notable and tangible of which being the reported loss of hundreds of millions of Rands in sponsorships suffered by an international sporting icon after adverse media coverage. I am reminded of the Institute of Risk Management South Africa seminar keynote address entitled: Ethics Talks II: Managing Reputational Risks and Promoting Sustainability by guest speaker, Mollie Painter-Morland, who holds a PhD, and is no stranger to business ethics, and her sustainability approach to business ethics makes the business case for high standards of business ethics indisputable.

Early in the talk, Dr. Painter-Morland introduced the concept of the Triple Bottom Line theory: that is, that companies should not only have regard to economic performance, but should add social and environmental issues to the scorecard; as she elaborated on ways to evaluate, manage and measure the social and environmental performance of a company, it became clear this was not just theory. It has very practical application and should be an integral part of overall business strategy and planning.

Dr. Painter-Morland went on to explain the business case for the ‘sustainability approach’ to business ethics is strengthened when considering it is not only just good long-term strategy; it can also provide access to new markets, costs can be minimised, competitive advantages can be gained and it is also good risk management strategy.

Providing insight on the understanding of the internal and external risks and the key challenges facing organisations in this regard today, Dr. Painter-Morland also addressed the ‘how to’ in some detail and, as a starting point referenced, the Global Reporting Initiative (GRI), more on which can be found at www.globalreporting.org.

The goals of the Global Reporting Initiative (GRI) are to present principles and reporting formats to account for the sustainability of an enterprise, to assist an organisation in presenting a balanced picture of performance on a Triple Bottom Line basis, to promote comparability of reports, to support benchmarking and assessment of sustainability performance and to facilitate stakeholder engagement.

Stakeholders, in this context, are viewed in their broadest sense as any group that can affect the organisation or be affected by it and engagement should include clear communication on why the organisation draws the boundaries where it does. Communication should be pro-active and stakeholders should be engaged in multiple ways that are tailored to the organisation’s stakeholders.

While the GRI principles addressing the Triple Bottom Line theory of economic, social and environmental performance, dubbed the G3, include at the core, stakeholder inclusiveness, materiality in the sustainability context and completeness of disclosure (transparency), the quality of reporting will be assessed by having regard to the balance, comparability, accuracy, timeliness, clarity and reliability of the reporting.

Economic performance indicators will be viewed having regard to the flow of capital between the organisation and its stakeholders; and the economic impact on society, on a local, national and global level having regard to customers, suppliers, employees, providers of capital and the public sector.

Environmental performance indicators, while including a host of issues, at heart, will focus on the organisation’s impact on living and non-living natural systems, and social performance indicators will focus on the impact on social systems within which the organisation operates, such as labour practices, human rights, local culture and product responsibility.

Regulating risk from a Triple Bottom Line perspective includes the separate evaluation of governance and compliance, economic and social data. In the course of this, evaluating risks related to governance and compliance, economic and social issues, gives the organisation a starting point from which to manage and improve the risks, leading towards a marked improvement in the sustainability of the enterprise.

Triple Bottom Line reporting (whilst not without its challenges given a lack of vision in this regard), the failure to integrate business ethics as a core business sustainability strategy, the prevalent silo mentality in global corporations and charges of ‘white-washing’ and ‘green-washing’, presents many opportunities.

By adopting the G3, GRI reporting standard, risk management is embedded as part of the pro-active strategy of the enterprise and, in the context of sustainability, you can achieve consistency across silos in the business, benchmark against the JSE SRI (Social Responsible Index) and give employees a better sense of what they are working towards and why they should care.

Dr. Painter-Morland warns, though, that thinking of sustainability as the new buzz word could lead to forfeiting the benefits of realising the significant business value of harnessing these dynamics to propel your business to greater heights on a sustainable basis, adding that many enterprises already conduct many of these activities, albeit in not such a focused fashion.

One way to maximise the outcomes is to harness the resources already being expended in this regard by escalating sustainability and business ethics to executive strategic planning level within the enterprise.

Hats off to the Institute of Risk Management South Africa (IRMSA) for arranging this stimulating talk and a word of thanks to the sponsors of the event, Alexander Forbes and CQS.

Insurance Gateway® a division of Stoker Risk and ICT (Pty) Ltd www.insurancegateway.co.za

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