Business and the Risk Framing of Environmental Issues

The World Economic Forum brings out the Global Risks Report every year ahead of its annual Davos event. The report features the potential impact and likelihood of 29 global risks. One of the categories is environmental risks. For example, ‘water crises’, ‘failure of climate change mitigation and adaptation’ and ‘extreme weather events’ were featured as the top 3 risks for the next decade in the 2016 Global Risks Report.


Source: WEF


The framing of environmental issues as risks is not new, but such framing is being increasingly used to make the  business case for sustainability.  The various operational, regulatory, reputational, financial and market risks to businesses, resulting from unsustainable extraction and use of resources (viz. water, biodiversity, materials and energy), and from the impacts of wastes and emissions (viz. air emissions, solid wastes, wastewater, carbon emissions) are often underscored to drive home the importance of corporate environmental management. The business case of sustainability, according to a number of recent studies, lies in managing these risks effectively and in harnessing any opportunities that arise in the process (e.g. green products, cost savings from energy/raw material conservation, product differentiation, improved brand image etc.).


A Typology of Biodiversity Risk to Business – Source: WEF


But why is there a need to frame environmental issues as risks? Why don’t environmental problems such as climate change, biodiversity loss or water crisis by themselves evince enough alarm to galvanize business into action? It would be naive to think that corporations are altruistic entities and that solving global environmental problems is on their agenda. Corporations operate in such fiercely competitive environments governed by brute market forces,  that pragmatism is the only consideration which drives decision-making – the bottomline is the only thing that matters. But, the fact is that environmental problems do affect the bottomline. Raw material scarcity, extreme weather events and contamination (and the associated costs, litigation and consumer backlash) can lead to disruption and closure of operations and can make entire supply chains come crashing down. Therefore even if businesses think that saving the planet is not their business, from a risk perspective, it very much is. Thus, framing environmental problems as real risks to their profits and their very viability is the only way sustainability can appeal and make sense to corporations, rational dispassionate market entities that they are. Sustainability can sneak into corporate boardrooms disguised only as risk!


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