Even the most innovative and adaptive African companies over the last 12 months will emerge from the Covid-19 pandemic into a changed business environment — employee health and well-being considerations, privacy and data protection requirements, cybersecurity threats, diversity, activist shareholders, executive compensation and more. Every business will need to understand and stay ahead of these changes to succeed.
In my last article, looking at how African Boards can build more effective Environmental, Social and Governance (ESG) leadership, I recommended including current and emerging ESG challenges in your corporate risk register.
What I didn’t say much about was how to use this approach to manage your ESG risks and create value for your business — how to make it part of your core business planning and decision-making process. We discuss customised approaches in my ESG Masterclasses for Boards, but here are some practical steps to get you started: -
1. Reflect, learn, reflect again
While many businesses are focussing on survival, their Boards must also take time to reflect on lessons learnt during the pandemic, to increase future resilience and adaptability. Your management team, under pressure of the ‘now,’ may see this as more luxury than priority. The responsibility is yours as a Board member to balance supporting management through today’s crisis with motivating a strategy to grow or transform the business. This is balancing the trinity of ‘build on the past, deliver the now, and focus on the future’. The last year has been principally about delivering for the now; this is the time to focus on the future. I frequently remind boards that ‘when you stand higher on the mountain, you should be able to see further ‘.
Your mountain view must encompass recent ESG-related changes that have implications for your company, business sector, regulatory and operating environment, and reputation. Think about which ESG trends or events affected your company’s path through the pandemic materially, which of them destroyed and could continue to destroy value.
A useful way to picture these moving parts is through a materiality matrix which allows you to plot the importance of key ESG issues to your future business against their relative importance to your stakeholders. Where the two collide could sit the greatest risk or the greatest opportunity for your business.
2. Integrate ESG Risk
How do you know your management team is identifying and addressing future ESG challenges and opportunities? Will investors look at your company and see that it is prepared for volatility?
If you have done your ‘reflection’ homework and continue to engage with your stakeholders, you are almost there. The challenge now is to assess and prioritise your ESG risks with the same rigour as other business risks. In practice, this means having a conversation with your management team around two issues. Which ESG risks increase the impact of other business risks? Which ESG risks are material enough to warrant a new risk category or line in your corporate risk register? Once you have done this, you can agree thresholds to each risk (likelihood, impact) and a process for mitigating, monitoring and reporting.
If you already have a corporate risk register, you should not need to create a new register for ESG risk. The aim is to integrate ESG considerations into mainstream Board discussions and risk management processes rather than adding new areas to your agenda. The process should enhance your understanding and management of all areas of risk to the business.
3. Now find the opportunity
In the past year or so, you may have experienced increasing costs and time constraints due to supply chain issues or difficulty making payments. You may have managed these constraints — or risks — by making adjustments such as using local suppliers rather than importing goods or relying more on technology. That’s what a number of other African companies have done. They have seen the benefits of lower costs and shorter delivery timelines, improved resilience and enhanced customer and employee loyalty. Some may even have attracted new investment. Could your business have benefited in this way?
Identifying your ESG risks presents a great opportunity to understand how good performance in these areas can harness value for your company and serve to be a market differentiator. This is a different and exciting conversation with your management team — about responding quickly to your ESG challenges, and using them to build competitive advantage. As an African business leader, you’re probably used to finding the opportunity in every situation. This is one of those moments.
Doing some or all of these things should better equip your company to identify and manage its overall risk profile. It could even help you to capture real added value, and of course I would love to hear your thoughts, ideas and success stories. In my next post, to be published on 16th March, I will provide practical advice on how to deliver new value for your business through another aspect of sustainability best practice, Corporate Social Investment (CSI).