Managing future uncertainty

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An introduction to integrating risks resulting from macro sustainability trends into business decision making

 

Key insights

Integrating macro sustainability risk into management and decision making processes helps to build resilience. This provides benefits for your organisation such as:

  • Enhanced decision making capacity, agility and adaptability
  • Deeper insight, knowledge and intelligence on current sustainability risks and emerging issues
  • Ability to manage stakeholder expectations and business reputation with greater certainty
  • A broader framework and principles for innovation

Why the project was chosen

The global economy is entering a new era. Issues such as the over-consumption of finite natural resources, climate change, population growth and the associated increase in demand for food, water and energy are creating new challenges and opportunities for both the private and public sector.

The challenge for businesses is the uncertainty that surrounds these trends. Factors that contribute to this uncertainty include include long term time horizons; the nature, scale and timing of impacts; lack of clarity regarding future public policies and regulatory frameworks; and shifting customer preferences.

The managing future uncertainty project was initiated to provide businesses with practical examples of how to overcome these challenges.

Characteristics of macro sustainability risk

Particular characteristics of risks derived from macro sustainability trends are that they are:

  • Difficult to define and the extent and time horizon of their impact is often uncertain
  • Interconnected, affect your business on many levels and affect multiple decisions
  • Outside your organisation’s control
  • Heavily influenced by actions by other parties that may not be assigned risk ownership
  • Difficult to predict as historical precedence may not be a reliable indicator of future trends
  • Require broad stakeholder input to identify the impacts effectively

How to respond

For your business to respond effectively, consideration should be given to:

  • Managing uncertainty around how these global trends will manifest into multiple future scenarios
  • Looking beyond short time horizons to longer term impacts
  • Understanding risks and emerging issues across the entire value chain
  • Collaborating to identify, assess and address the implications of macro sustainability risk

Enabling factors

These trends may impact a range of business decisions; from strategy, capital investment appraisal, mergers and acquisitions to new product and market development. Due to the nature of these risks, it can be challenging for many organisations to integrate them effectively.

Our top tips to enable integration are:

  1. Adapt traditional risk management processes, rather than seeking to develop new, or parallel approaches
    Consider risks arising from macro sustainability trends alongside ‘traditional’ financial risks as part of a holistic framework
  2. Bridge the knowledge gap by providing management with insight into key risks associated with macro sustainability trends
  3. Articulate the business case and commercial rationale for by highlighting the value at risk from inaction and associated costs e.g. rising insurance premiums and costs of supply chain disruption
  4. Adopt a longer term focus and plan for multiple possible outcomes and scenarios to accommodate the uncertainty associated with these impacts
  5. Source reliable data and contribute to the development of more robust information and commonly agreed approaches for addressing this uncertainty
  6. Collaborate with key internal and external stakeholders to ensure broad input and more informed decision making