Short-termism and seeking silver bullets: Why businesses still aren’t preparing for environmental risks
Businesses are struggling to tackle short-term pressures like the cost-of-living crisis while building in resilience against rapidly crystallising environmental risks, Forum for the Future is warning. But it believes that transformational change to business mindsets is possible – and vital.
The Forum has today (5 September) published a new report detailing how businesses find the “courage to transform” to manage the systemic risks associated with global megatrends like the climate crisis and nature loss. It also looks at how different kinds of corporate advocacy are needed to tackle the biggest challenges of our times.
Businesses are already dealing with environment-related losses at scale this year. July was the hottest month on record and businesses have dealt with related damages to infrastructure in places including Hawaii, Greece, Spain, Canada, China, India and Arizona. Businesses reliant on water for energy generation and shipping face risks from drought. This week, Spain is facing damage from flash flooding.
The new Forum report details three main reasons for businesses failing to update their risk and opportunity management in a rapidly changing world. All three have to do with board mindsets in which complex risk-related thinking does not take root.
Pursuing ‘Profit Supreme’
Chief among them is the pursuit of short-term profits. Businesses that externalise environmental and social risks, seeing risk management as a burden, are at risk of jeapordising their longevity for shareholder gain in the near-term. Other businesses may stick with a short-term mindset if they are unsure of how to act or underestimate the scale of future risks facing them.
Forum calls these businesses “Profit Supreme” thinkers. They are likely betting on fossil fuel profits now and digital technology profits in the near future. They probably believe they can enter and exit these markets with minimal risks from asset stranding or devaluation, despite a growing body of research forecasting the contrary.
Moreover, these businesses will probably have boards that either believe that corporates should not have a role to play in improving society and/or the environment. This may please shareholders but could impact their ability to attract and retain talent, appeal to consumers, or attract progressive investors.
Forum warns that, if the transition to a net-zero and nature-positive future is governed by the perpetrators of ‘Profit Supreme’ thinking, opportunities to create a more equitable world will likely be sidelined. The transition is unlikely to be socially just or inclusive.
Making ‘Shallow Gestures’
Much has been said in recent months about greenwashing or impact-washing. Businesses often state a commitment to a sustainable future but only take actions that tinker around the edges, Forum is warning, with efforts to clamp down on greenwashing using legislation still a few years off.
This can be seen in the gap between target-setting and real-world impact. Global emissions are not decreasing rapidly enough to deliver the Paris Agreement, despite unprecedented levels of corporate target-setting on the low-carbon transition. A recent CDP report revealed that only one-third of the companies reporting climate targets through its platform are either on track or almost on track to meet them. CDP has called the gap between ambition and delivery “worrying”.
Businesses in the ‘Shallow Gestures’ camp may be marketing rather than properly considering – and implementing – the level of change needed to deliver.
The Forum report outlines how businesses willing to make ‘shallow gestures’ but not to change unsustainable models may be dealing with short-term pressures and feel they do not have the capacity to plan and act strategically for the long-term. This is particularly true of small businesses.
Others may be acting more maliciously and actually be more like ‘Profit Supreme’ thinkers in disguise. For example, oil and gas majors continue to allocate the vast majority of their spending to fossil fuels despite mainly advertising renewables, electric mobility, and other cleaner options.
Forum is warning that while businesses taking shallow gestures may have a social licence to operate now, they won’t be properly planning for systemic risks in the long run.
Waiting for tech to save the day
The third mindset detailed in the report is ‘Tech Optimism’. Businesses in this mindset do acknowledge the increasing scale of risks relating to environmental and social breakdown – but instead of assessing the root causes and solutions with multiple benefits, they are waiting for ‘silver bullets’ in the form of new technologies that are not yet viable at scale.
High-tech, low-carbon solutions may not develop in time, the report warns. It also details how tech-heavy trajectories to net-zero are unlikely to address challenges such as the need for adaptation.
Also covered in the report are the growing debates around the ethics of technology use. It cautions against a transition in which wealthy ‘technocrats’ benefit, but most of the global population do not, breeding further distrust. It also discusses growing awareness of human rights abuses in technology supply chains, from critical minerals to artificial intelligence (AI).
All three of the mindsets detailed in the report can be partly attributed to a failure to assess biases and to properly look at whose insights are being excluded (deliberately or unconsciously). It outlines how having more equitable and balanced decision-making and governance processes can help to avoid pitfalls.
Steps to transformational change
Forum does emphasise that an equitable transition to a sustainable future is possible – but concludes that it will require an overhaul in business governance and mindsets sooner rather than later. It will also, of course, require changes in policymaking.
For businesses, the report outlines ways in which to reframe risk management as opportunity creation and resilience-building. Creating these opportunities will involve more than simply a single initiative or minor change in investment, it states. It will involve businesses assessing the root causes of risks to date and properly ensuring that they are part of the solution, not the problem, going forward.
This change in approach will help businesses to realise their ability to shape their operating context rather than leaving things, passively, to market forces and policymakers. A business looking to build a holistically sustainable future is more likely to be proactively engaging with policymakers, suppliers, investors, customers, staff and even competitors.
Forum for the Future’s global strategic lead for the purpose of business, James Payne, summarized: “There’s not enough focus right now on how businesses can most effectively achieve their sustainability goals against a backdrop of ongoing disruption. Futures tools, as used in this report, can help leaders to anticipate and respond in smarter ways to the volatility ahead.
“Understanding the different futures you could face clarifies the role your business could play in creating them. This is key to resetting how you understand and respond to the social and environmental challenges shaping the health of your operating context.”