Company Risk Management in Light of the Sustainability Transition

Abstract

Many of the most important business and economic risks are directly linked to environmental and social issues. This includes both threats and opportunities, not only in relation to reputation, which is often mentioned in this context, but, even more importantly, in relation to innovation capability and legislative change on inevitably more and more sustainability-driven markets. It is, however, unclear through which mechanisms such sustainability risks currently affect companies and how they can be systematically identified and managed. Based on the Framework for Strategic Sustainable Development, this study investigates the dynamics and implications of society's sustainability transition from a company risk management perspective. In addition, exploratory and descriptive studies were conducted at two large product innovation companies to identify current risk management practices and preconditions for sustainability integration. The results reveal that a society moving closer towards a collapse of environmental and social systems leads to increasing sustainability-related threats for unsustainable businesses and increasing opportunities for sustainable businesses. Also, risk management is found to be a promising way for maneuvering in a smart zone between being too passive and being too pro-active in relation to sustainable innovation. The study participants at the case companies were knowledgeable about risk management in general but were largely unfamiliar with risks associated with sustainability and no processes or support tools exist to work systematically with such risks. Key steps to accomplishing an integration of a strategic sustainability perspective into risk management are proposed as: (i) identifying the effects of sustainability issues on internal and external stakeholder value; (ii) actively including sustainability in objective setting and cascading objectives across the levels of the organizational hierarchy; and (iii) developing concrete support for identifying, assessing, and managing economic sustainability risks. Thereby, companies can enhance their competitiveness while providing leadership in the sustainability transition.

The Role of Enterprise Risk Management in Sustainable Decision-Making: A Cross-Cultural Comparison

“…Risk management has been viewed as an important practice for improving sustainable decision-making [3][4][5][6][7][8]. Unsustainable behaviors can generate potential business risks to an organization's reputation and ultimately result in the collapse of an organization [9].…”

Strategic Sustainability Risk Management in Product Development Companies: Key Aspects and Conceptual Approach

“…They represent the root causes of unsustainability, up-streams in cause and effect chains. The sustainability principles (SPs) state that "In a sustainable society, nature is not subject to systematically increasing (1) concentrations extracted from the Earth's crust, (2) concentrations of substances produced by society, (3) degradation by physical means; and people are not subject to structural obstacles to (4) health, (5) influence, (6) competence, (7) impartiality, and (8) meaning making" [16].…”

“…Even though the aggregated empirical evidence suggests that there is a positive correlation between the two factors, the question of whether it "pays to be green" has not received a definite answer [3][4][5]. However, shifting towards sustainable business practices is inevitable in the long term if human society's continuation on this planet is to be ensured [6]. Therefore, the most relevant question is not if, but rather what, when, and how sustainability initiatives should be pursued by companies.…”

“…By addressing these questions, the study has three aims: (i) to identify aspects that are essential for sustainability risk management in a product development company context and that can function as concrete recommendations for practitioners; (ii) to validate the sustainability risk definition and hypotheses proposed in an earlier study by Schulte and Hallstedt [6]; and (iii) to develop a conceptual approach that can support companies in finding and maneuvering the smart zone between being too passive and too proactive in relation to sustainability.…”

Perspectives on Innovation: The Role of Engineering Design

“…The self-benefit for the company is then clear through, for example, new innovations that provide more customer value, the attraction and maintaining of top talent employees, a strong brand and business image, being ahead of legislation, more motivated and loyal employees, lower operating and credit costs, lower vulnerability to sudden market changes (Testa and Iraldo, 2010;Willard, 2012). In short, engaging in increased capabilities for sustainable product development is a way to exploit business opportunities and avoid long-term negative consequences, which means that it is smart risk management (Schulte and Hallstedt, 2018). Sustainability is a good example that simultaneously brings principally new perspectives on both business, management and development of innovation.…”