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GLOBAL RISK LANDSCAPE 2021
GLOBAL RISK LANDSCAPE 2021
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THE PANDEMIC’S SILVER LININGS Despite the widespread shock and impact of the coronavirus outbreak, some organizations have experienced unexpected benefits
moral and business reasons. But equally, there is nowhere for them to hide now on these issues. Consumers, employees, investors and governments are all demanding more action on ESG issues and there is greater transparency than ever before thanks to the power of social media and the increased availability of big data tools. Companies should expect a paradigm shift in the future, says BDO’s Emanuel van Zandvoort. “Employees, especially younger generations, will demand clear values, policies and performance measures on ESG themes to stay engaged with the business. ESG may become potentially more important than earnings and income,” he says.
Silver linings: the most important positive changes stimulated by the pandemic Ranked 1st Ranked 2nd Ranked 3rd Combined top three
Our digital transformation programs have accelerated more than they would have done
19%
22%
16%
57%
Many people thought that the COVID-19 pandemic would signal a reverse of recent progress on sustainability, as happened during the financial crisis a decade ago. However, the reverse appears to be true. The all-encompassing nature of the outbreak highlighted how interconnected the global economy is and the need to take a worldwide approach when it comes to considering risks. It has made companies realize that they must adopt a new approach to doing business, one that considers all their stakeholders. Our research showed that companies feel that despite the upheavals of COVID-19, companies have found a silver lining in the ability to refocus on environmental, social and governance (ESG) factors. In our survey, 24% of respondents cited “improved environmental credits” as their top benefit of COVID-19, and 20% said they had “refocused on social purpose”, which means the top two spots were occupied by ESG factors.
Van Heel, head of client sustainability and environment at law firm Freshfields Bruckhaus Deringer, says: “Companies that have strong sustainability credentials benefit from greater loyalty from key stakeholders including employees, customers and suppliers.” The pandemic has acted to accelerate companies’ commitment to environmental issues, the Dutch bank ING found. In part this is because many governments have linked their post-pandemic stimulus programs with the imperative to tackle climate change. At the same time, renewable energy has reached cost parity with rival forms of power generation and it is becoming obvious that there are growing risks to remaining wedded to fossil fuels. As an added bonus, investing in renewables will create many jobs as countries and regions focus on “building back better”. All of this makes it easier and more desirable for companies to tackle environmental and climate issues.
We have refocused on the social purpose of our business, and become more socially responsible
20%
18%
9%
47%
We have improved our environmental credits, for example by reducing our carbon footprint
BOUNCING BACK WITH ESG
24%
7%
9%
40%
Although it is difficult to predict how the pandemic will play out, taking a forward-looking, risk-focused approach will enable companies to become more resilient during and after COVID-19, say Bloomberg legal analysts Dylan Bruce and Sansanee Dhanasarnsombat. “Most companies will experience some level of challenge and difficulty in response to the COVID-19 pandemic, but those companies with established ESG strategies and infrastructures may be the first to bounce back. Companies that internalize the experiences of the pandemic, and apply lessons learnt to the next crisis, will continue building resiliency to external environmental and economic factors,” they add. Peter Bakker, WBCSD chief executive, points out that unless we use the return to “normal” to create a truly better focus, we will miss a massive opportunity to do better. “We need to strengthen the links between sustainability, biodiversity loss, climate change, inequality, health, and big shocks to the system that are happening today,” he says. “Never waste a good crisis: we have both the collective responsibility and the opportunity to act to be part of the solution, to take the lessons we can draw from this crisis into the core of the future of business.” It is this opportunity, coupled with the risks of failing to act, that is driving businesses to embrace the ESG agenda.
3%
Internal culture has improved, e.g. productivity levels have risen
16%
15%
35%
Employee wellbeing and satisfaction has improved
6%
12%
11%
29%
Operational costs have reduced as our processes have had to be streamlined
11%
7%
7%
25%
BENEFIT OF COMMITTING TO ESG
SHIFTING TOWARDS SOCIAL
It is increasingly clear that ESG issues are not just an optional extra for corporates, they are material factors for all businesses when it comes to managing risks and identifying new opportunities. “The pandemic has served as the first real proof-point for sustainability, underlining the fact that ESG investing doesn’t come at a cost, but can future-proof investments, all while helping to shape a better future,” says Fiona Reynolds, chief executive of Principles for Responsible Investing. Yi Sun, an analyst at the World Business Council for Sustainable Development (WBCSD), says companies that deal well with ESG issues are less vulnerable to shocks and more resilient to systemic risks. Oliver Dudok
3%
Our core competitors struggled to adapt and are now less of a threat
6%
16%
25%
Meanwhile, the other key impact of the pandemic has been to highlight a whole host of social issues and their importance to businesses. These include not just the health and safety of workers but employee welfare more generally. Issues of gender and racial diversity, and income inequality, also came to the fore. And these concerns were not just confined to a company’s own employees as there are calls for greater transparency in how workers in a company’s supply chain are treated. ING reports that employee health and welfare is now the top priority for companies.
5%
Our revenue has increased more than expected as a result of the pandemic
8%
7%
20%
5%
2%
Our supply chains have become more stable, robust or resilient
7%
14%
3%
2%
2%
Our customers’ behaviour has permanently shifted in our favour
In part this is because they want to do the right thing and support their staff, for both
7%
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