Tips for Businesses to be Resilient & Sustainable
An Agile Business Model and Robust Controls
For businesses to be resilient, strategic business planning is key. This involves having an agile business model for implementing medium-long-term plans. This often entails examining internal and external processes and controls such as finance, commercial governance, and evaluating whether there are sufficient resources such as finance for implementing the necessary business model and controls for the business to be a viable investment, a sustainable business, and a going concern for the long-term.
Strategic and Financial Planning Expertise
Not all businesses have the capability or expertise to develop and implement financial plans successfully. SME businesses do not often have access to the right resources or expertise for strategic business and financial planning which is vital for long-term survival. This is likely to be an experienced accountant or strategic advisor with expertise and a wealth of experience in developing and implementing strategy. The process will certainly involve developing and implementing a financial strategy for funding, operating and Capex costs, and managing cash flow risks.
Governance and Data Led Decision Making
Resilient businesses often use an integrated approach involving governing non-conformance of controls and data analysis to better influence future business decisions and by examining the effectiveness of their people, processes, systems, and controls. This involves monitoring, measurable KPIs e.g., sustainability of commercial activities, analysing data and reporting performance to stakeholders while actively governing non-conformance to influence and lead future decision making.
Today globally connected and the digitised world goes beyond individual businesses and extends to ecosystems and communities that the business operates and serves in via its products and services. Therefore, the ability to govern issues affecting global communities e.g., ESG issues are critical. And business models must evolve in response to these. Resilient and sustainable businesses transparently set targets, govern ESG KPIs and actively report on impact. It is key that these sustainability factors are rooted in strategic business planning, financial planning, and investment practices.
Businesses, Global Value Chains and Ecosystems
The impact of COVID-19s on global value chains demonstrates the importance of integrated approaches to risk, resilience, and sustainability. This requires businesses to view themselves as part of a larger ecosystem that includes other businesses and customers, workers, and suppliers. Disruptions to any component of this ecosystem can have severe consequences, thus, today building resilience entails going far beyond typical business risk management measures and considering the risks posed by challenges to enterprises and people in other communities. Corporate Social Responsibility CSR, ethical business practices and United Nations sustainable development SDG goals serve as useful frameworks. The OECD in their 2021 report building resilient and sustainable Global Value Chains (GVC) through Responsible Business Conduct (RBC) emphasise this as shown in table 1.
Source: OECD (2021) Responsible Business Conduct and Resilience
Investments in Technology and Innovation
One way to adapt and fulfil changing demands is through innovation and investment in your business to ensure alignment with new customers, staff, and partner expectations. Resilient organisations are more prepared than others for this. They can adapt, innovate, integrate data and processes, leverage intelligent technology, and remain adaptable in a crisis according to Helen Dwight, Global Head of Marketing, Intelligent Enterprise and Industries, SAP. These characteristics can enable SME businesses to differentiate themselves from the competition and establish a sustainable advantage in their verticals. SAP refers to these firms as "intelligent enterprises." Intelligent organisations must go beyond resilience to flourish during and after a crisis. They have broad ecosystem thinking and devote resources to investments in R&D and innovation
Leveraging Technology as a Source of Competitive Advantage
An effective method to recover from a crisis is developing and evolving your business to establish a sustainable market advantage. Some businesses may have capital from retained earnings to reinvest in others may not and must collaborate with other businesses to deliver innovative products and services to meet client needs in an agile and cost-efficient manner. Rapid response is critical with businesses seeking to use technology to optimise costs, transform and reinvent their businesses. The time is now for businesses to embrace an innovative model that enables them to gain access to global resources and implement processes necessary to develop and deliver goods and services efficiently.
Integrating global value chain risk management approaches by ensuring:
- Sustainability considerations are included in risk management processes
- Increasing awareness of risks associated with major supply chain disruptions
- Developing and implementing policies aimed at increasing resilience.
- Enhancing social dialogues at company national and international levels
- Incorporating responsible business conduct into commercial and trade policies
- Implementing OECD guidelines for investment that enhance climates and RBC
- Including RBC in investment policies, monitoring and governing compliance
OECD Responsible Business Conduct Principles
Due diligence for example via audits is one way by which businesses can detect, prevent, and mitigate unfavourable risks and consequences in their operations, supply chains, and businesses as advised by OECD Multinational Enterprises (MNE) Guidelines. Effective due diligence should be accompanied by attempts to incorporate RBC into procurement policies and management systems, to enable businesses to address unfavourable consequences they create or contribute to through their supply chain activities (Figure 2).
Source: OECD (2011, 2018)
Increasing Appetite for Sustainability and Climate Action
In today’s market, significant generational shifts are resulting in consumers demanding items with reduced carbon footprint and locally sourced raw materials and goods. This has been accelerated due to increased public awareness of climate change risks and the impact of manufacturing, transport and logistics risks brought on by the pandemic. COVID-19 has hastened this with customers now more aware of how quickly the virus spread across countries and continents due to travel and globalisation.
Awareness of External Drivers of Change
Employees now want greener working conditions and increased company-wide sustainability efforts Employee environmental expectations have increased by 52 per cent, according to Peakon's 2020 report, with environmental dialogue increasing by 128 per cent among Gen Z employees and 600 per cent in the industrial sector. Employees post the pandemic are adapting to remote working conditions. Many want this to continue, citing the benefits of decreased commutes on wellbeing and improved environmental quality during the lockdown. Governments are urging businesses to adopt sustainable procurement practices and reduce their activities' carbon intensity to attain environmental science-based targets towards net-zero. State assistance for pandemic-affected enterprises has been linked to climate action. The EU's seven-year €1 trillion budget proposal and €750 billion recovery plan both include 25% spend for climate action with a “no harm” criterion for beneficiary businesses or projects.
Tangible Benefits of Embedding Sustainability
According to Bearing Point, there are three precise levels of activation that businesses can use to ensure that sustainability is embedded and that it provides tangible benefits. These include:
1. Compliance - Measuring a business's environmental impact is key to the success of any future sustainability initiatives. This includes establishing key performance metrics, developing a corporate social responsibility plan, and assessing the impact of your supply chain activities.
2. Optimising Opportunities – Opportunities that exist in pursuit of sustainability. Businesses need new business models that can enable them to be more environmentally friendly while safeguarding profitability, such as smart cities, the circular economy, and green energy.
3. Company differentiation - By integrating sustainability into strategic business plans, businesses are positioned to comply with government targets, employee demands and gain new customers. It is vital to have alignment across the business to avoid greenwashing risks.
Practical Case Examples: L’Oréal and Danone
In this report, we examine L'Oréal and Danone as case examples. Both businesses previously collaborated extensively with stakeholders in their ecosystems to achieve sustainability goals, and these ties aided in their rapid response to the pandemic. Consequently, both companies have seen increased market share therefore investors must pay attention to business sustainability action plans and management behaviour because businesses that perform well with sustainability metrics and ESG KPIs are likely to be more resilient than those that do not when unforeseen risks occur.
During the pandemic, L'Oréal proposed a "European coronavirus solidarity program." The goal was to help stakeholders battle Covid-19. L'Oréal shortened payment terms for over 9,000 crisis-affected suppliers and suspended invoices for SMEs in its distribution network. Danone is a founding member of the Business for Inclusive Growth (B4IG) group. While Business for Human Rights is a non-profit organisation led by Danone's CEO. Following the epidemic, B4IG issued a €38 billion collective package to help its members' employees, communities, clients, and suppliers. Danone pledged €300 million to help 15,000 small and medium-sized businesses.
Before the Covid-19 crisis, these firms all understood their greater societal duties to the communities where they operate. As a result, in addition to assisting staff and giving free hand sanitiser or soap, these organisations instantly recognised the threat to their value chains and responded swiftly. In taking these steps they solidified their market positions and brand strength. Research from Investment Week shows a positive link between relative market performance and strong ESG rating. Good sustainability credentials correlated with quality, effective leadership, and market resilience. As a result, ESG traits will become even more critical in determining a company's future resilience
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Qualified accountant and consultant with 25yrs experience specialising in independent cost audits and sustainable business strategy. Works with major infrastructure projects HS2, Crossrail and scale-up SMEs. Chair of multidisciplinary cost assurance steering group a CSR/ESG (governance) initiative.
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