New Zealand

2021 - Covid-19, Organisational Sustainability and Climate Risks

2021 - A year of new challenges? Or perhaps a year of raised profile of things that have always been there? Covid-19, organisational sustainability and climate risk are 3 big areas we think demand strategic consideration by all organisations.  Here’s why.

Covid-19

Covid-19 continues to evolve as an issue to be addressed by organisations.  Its impacts have made many organisations seriously review and re-think their business models.  Mostly that’s been a very healthy and valuable outcome.

However, for some other organisations it should have resulted in serious consideration, yet they appear to have been lulled into a false sense of security or delusion.  Partly we fear due to the positive impact of the Government’s largesse at spending our country’s future funds to keep our economy running. The Government’s massive pump priming stimulus has undoubtedly been successful.  But is it sustainable?  Someone has to pay the piper at some point…

Many are pinning their hopes on vaccines.

Undoubtably vaccines will improve the situation.  But the reality is that a comprehensive worldwide vaccine rollout is not proving easy.  Nor will it be quick.  Factors such as supply challenges, inequity between rich and poor nations, varying political support across nations, and anti-vaccination movements will all frustrate.

What can we do?

We need to now shift our organisational thinking from a “pandemic emergency mindset” to perhaps a more endemic view of Covid-19, or dare we say a future pandemic of similar scale i.e. living with it as an ongoing feature of our lives, possibly for years. Covid’s impact on our organisations will likely continue to mean disruption, operating within significant uncertainty, and a very uneven impact across different sectors, and even within different organisations within the same sectors.

The mahi or work required here by all is to ensure the risks to our organisations are understood and mitigated where possible, and our business models are resilient, fit for purpose, adaptable and sustainable.

It is also important to keep positive and remember that with any change one of the biggest risks is looking through an overly negative lens.  This can result in failing to identify and seize on positive new opportunities that arise. 

Organisational Sustainability

Sustainability in its broad definition means the concept of an organisation being able to successfully continue.  It is also a word that has somewhat been hijacked and is understood by many to just refer to environmental matters.  It doesn’t and needs to be thought of in a more holistic sense. 

The most recent, immediate and all-consuming threat to sustainability for many organisations has been Covid-19.   Reflecting on the impact of Covid-19, both on our own organisations and others in the wider market, has highlighted some business model challenges.  Included amongst these have been:

  • Lack of balance sheet resilience to withstand unexpected revenue shocks
  • Not enough focus on supply chain resilience and/or alternatives
  • Short term profit maximisation decisions at the expense of longer-term business model resilience and sustainability
  • Undue revenue reliance on certain customers or sectors
  • Not being nimble or flexible enough
  • Not investing enough in business improvement measures 

In many cases Covid-19 has just served to put the spotlight on, and highlight, existing threats to our organisation’s sustainability.  In some cases, it has acted as a blowtorch turning up the heat on these issues both in terms of intensity and urgency.

For an organisation to be truly sustainable it needs to keep improving and keep evolving.   Nothing is static.  This means not resting on its (past) laurels but rather adopting a restless desire, mindset and action bias for ongoing improvement.

What can we do? 

  • Ensure enough governance and management time is spent out of the day-to-day operational weeds of our organisations.  The highest value use of time is often observing, reflecting, and looking strategically at risks and opportunities.
  • Ask brave questions - of ourselves and others.  Being brave includes questioning what may be the “sacred cow issues” within our organisations.  Nothing should be above critical consideration in the search for ongoing improvement. 
  • Ensure there is enough diversity of thinking being bought into our organisations.  Unless you operate in an environment where your customers, your suppliers, all your other key contacts are and think exactly like you (Hint: we have never seen this!), then you are probably missing useful insights and challenges to your thinking and model of operating.  
  • Develop scenario modelling and quick responses for worst case scenarios – be prepared.

Climate risk

Responding to Covid-19 has been a very immediate and all-consuming issue for organisations to deal with.  However, our pick for the most significant longer term strategic issue on organisations is the impact of climate change.  And more specifically; the significant and fundamental changes to many aspects of our way of life that responding to climate change will have in the coming decades. 

Our view is that no organisation will be unaffected by this and hence it demands strategic consideration. 

Yet even with all the profile on the topic a recent Institute of Directors survey found only 35% of directors were actively engaged on climate change.   This highlights the danger of short-term issues taking our focus away from the really important strategic longer-term issues. 

Internationally there is growing demand for organisations to consider and report on their sustainability and as a significant subset of that; on how climate risk may impact them.  In New Zealand reporting on climate risks is being legislated for certain large entities.  We have already written on some of the challenges and opportunities of climate risk reporting in New Zealand (Click here to read more)

Whatever your views of climate change, there is no question that climate risk has been rapidly climbing up the priority lists of governance and management.  This has been caused by a range of factors including increased:

  • Climate risk awareness – eg more extreme weather events and 2020 being the 7th hottest year on record for NZ
  • Public consumer pressure regarding social licence to operate – amplified by social media reactions
  • Supply chain requirements – suppliers, funders, insurers and customers demanding certain standards and harm mitigation activity
  • Direct regulation – to assist Governments meet various agreed targets

What can we do? 

We’ll write more specifically on practical steps that can be taken shortly.  But the immediate action should be ensuring that 2021 includes scheduling enough time, resources, and focus for serious strategic consideration of climate risks and opportunities.  This needs to be a priority for both the board and management’s time. The stakes are too high not to.

 

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Authors

Wayne Tukiri
Audit & People Partner
Craig Fisher
Consultant