Building Organizational Resilience with ESG
Organizations need to do more than know their product lines, research their customers and balance the books. They also need to understand the threats and opportunities that are part of the world in which they operate. Understanding the nature of risk might not be the most exciting part of running an organization, but it's the one that will help to ensure you have an organization to work at in the years to come.
The last few years have completely upended our ideas of what is required to build a resilient organization. In 2019, no one was thinking about how to react to a pandemic that would shut down the entire world, a supply chain that threatens to crumble under the weight of constant disruption, the pace of climate-induced severe weather events or the catastrophic impact of Russia invading Ukraine.
While many organizations view ESG (environment, social and governance) as simply another reporting obligation, ESG principles and frameworks provide organizations with the opportunity to better understand their people, processes and tools, and to optimize their efficiency in a way that not only benefits ESG reporting but also improves the ability to be resilient in the face of constant disruption.
Increasing Global Threats
Consider, for example, the case of the global supply chain. Prior to the COVID-19 pandemic, much of that supply chain began with manufacturing in China. When rampant COVID-19 outbreaks shut down manufacturing, everything from semiconductors to machinery became difficult to obtain. Many organizations didn't have enough insight into their supply chains to understand the catastrophic impact of disruption to their logistics operations, especially if they relied on single suppliers for critical components. As COVID-19 receded and manufacturing began to recover, shipping disruptions took over, with loading and unloading processes at docks falling apart due to labour shortages and massive workloads resulting from pent-up consumer demand.
An increase in climate-induced severe weather also threatens to have a significant impact on everything from global manufacturing to human habitation. Scientists predict that global warming will make some regions of the planet, particularly in India and Pakistan, uninhabitable in the decades to come. The impacts of this crisis will include unprecedented patterns of human migration and the loss of agricultural land, which could in turn lead to disruptions of the food supply chain.
How ESG Can Boost Organizational Resilience
The fundamental principles of ESG are designed to help reduce environmental damage, improve equitable access to the benefits of global capitalism and provide transparency and accountability to corporate governance through rigorous data collection and reporting.
However, embracing ESG also means that organizations will find opportunities to improve the efficiency of their processes and to know the intricacies of their supply chains in new and profound ways. ESG makes organizations accountable for everything from emissions to diversity and corporate compensation. It also requires that they report on those elements using one of many in-depth ESG reporting frameworks. As a result, organizations will uncover opportunities for efficiency that will not only improve their reporting but will also help them develop strong organizations with the resilience to weather future disruptions.
What You Need for ESG Success
Good intentions and catchy ESG marketing jargon are not enough to make your ESG management program a success. For ESG to have a real impact on your organization’s resilience, you need three things: data, tools and processes.
High-Quality Data – The data you collect for ESG reporting comes from all over the organization and along your supply chain. It includes health and safety reporting, emissions data and much more. Having this data available not only helps you fulfill your reporting obligations, it gives you deeper insight into your organization and your supply chains, which facilitates better resiliency planning.
The Right Tools – Organizational resilience requires the right digital tools to manage the complexity of ESG risk. AI-based quality control to reduce waste, predictive analytics to manage energy consumption, digital twins to automate decision making and automated calculation of carbon footprints are only some of the digital transformation tools today’s organizations need to keep up with a world undergoing constant disruption.
Efficient Processes – Many ESG principles, including respect for stakeholders, reducing waste, strong governance and operational efficiency are already found in several quality approaches, including Lean, Baldrige and Total Quality Management (TQM). Using quality principles across your organization can have a powerful impact on ESG efficiency and organizational resilience.
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