There are two perspectives on the relationship between business and global development - risk and impact - and two lenses on business sustainability results - ESG and EES. Four strategies result: risk management, resilience management, impact driver management and impact management. Best practice is to use them all, applying double materiality, to maximise all-round sustainability.
3 min read | Last updated 23 June 2021
There are two perspectives on the role of business sustainability practice to manage the relationship between business and global development and there are two lenses on the results of those practices.
The risk perspective is based on the idea that businesses are at risk from changes in the economy, environment and society (EES) and the role of business sustainability practice is to identify and respond to those risks, either by mitigating those risks or by reducing the business’s vulnerability to those risks. The impact perspective is based on the idea that businesses impact the economy, environment and society (EES) and the role of business sustainability practice is to manage those impacts, either through the lens of what the business does (impact drivers) or through the lens of the difference the business makes (impacts). A business may take one or both perspectives.
The risk and impact perspectives are closely tied to the materiality principle. Businesses should focus only on EES factors that are material to their operations and stakeholders. Materiality assessment depends on whether the business uses a risk perspective (single materiality) or a risk+impact perspective (double materiality). Double materiality is best practice.
There are two lenses on measuring results of business sustainability practices. One lens assesses business changes (inputs, outputs and outcomes) across material environmental, social and governance topics – the internal ESG lens. The other lens assesses business-induced changes experienced by people and places across material economic, environmental and societal factors – the external EES lens.
Four complementary and overlapping strategies for business sustainability have evolved. Best practice is to use all four, applying double materiality, to optimise value and minimise risk for the business and society.
The Four Business Sustainability Strategies
|Risk perspective||Impact perspective|
|Internal ESG lens|| Risk |
| Impact driver |
|External EES lens|| Resilience |
| Impact |
The risk management strategy is to manage business ESG metrics (business inputs, outputs and outcomes) to mitigate the business’s most material EES risks. This strategy represents the narrowest concept of business sustainability practice, with a focus on pre financially material topics. Data relating to ESG risk management is useful to mainstream ‘ESG’ investors who see potential value in the efficiencies and price stability that this approach tends to produce. SASB standards support this approach exclusively and consider material risks to be industry specific.
Measures are reputational and pre financial, such as:
- reducing dependencies on fossil fuels and natural resources
- reducing impacts on biodiversity
- increasing diversity and inclusion in the workforce and boardroom
The resilience management strategy is to build and maintain the business’s capacity to respond effectively to global and local risks relating to economic, environmental and social issues.
Measures include building the capacity to:
- absorb shocks in the short term
- incrementally adapt to ongoing change
- permanently transform in response to a severe crisis
For instance, climate change adaptation planning is a best practice recommended by the Taskforce on Climate-related Financial Disclosures, and is being mandated by the New Zealand government and others.
The impact driver management strategy is to manage business ESG metrics that relate to the business’s most material EES impacts on its key stakeholders. Businesses that adhere to the best practice lens of double materiality assess risks to the business and impacts on stakeholders. Hence, the ESG impact driver strategy tends to envelop the ESG risk approach, aiming for business outcomes that are good for the business and for its impacted stakeholders. GRI standards support the combined ESG (risk+impact driver) management approach.
- mitigating climate change through reducing GHG emissions
- improving health, safety and wellbeing standards for employees
- investing in local communities in which the business operates
- cradle-to-cradle designs to prolong product lifecycles and reduce waste
The impact management strategy is to identify and target specific EES sustainable development needs and manage business actions to make measurable differences to these.
- a business operation, eg the ‘ buy one, give one’ model used by Warby Parker, Eat My Lunch
- a business foundation that uses funds donated from business profits, eg IKEA Foundation
- a partnership with an NGO that shares a similar or related goal, eg GlaxoSmithKline and Save the Children