From Emergency to Emergence: Building Resilience for a Real Recovery

From Emergency to Emergence: Building Resilience for a Real Recovery
3rd June 2020 John Gummer
John Gummer
In Blog

Business can never be the same. The Covid-19 pandemic has accelerated changes, in a way which would have been unthinkable only a few short months ago.

While we focus on the safe restarting of businesses, the context in which we work has altered fundamentally. And those who want to be ‘back to normal’ as swiftly as possible, have to face the fact that what will be normal is very different from 3 months ago. Many of the old ways of working will have no attraction for businesses that are seeking, not just to survive, but to be sustainably profitable for many years to come.

The pandemic has shown that the machinery of commerce and the way that we organise our society are unacceptably vulnerable. Just to go back to our past position would simply be to assume that there will never be another shock. What would we have learned that would make our businesses and the systems on which we rely more resilient?

What was once seen as the remotest of risks has actually happened. And the world can’t simply wish that fact away. It has changed us.

Of course it is still too early to guess what exactly ‘normal’ for business will look like. But already, even while we are still sorting ourselves out, it’s clear that we need to build businesses which are fundamentally more resilient because they serve society better. That will mean working differently, understanding supply chains in a much more coherent way, acknowledging the limitations on resources and recognising again our fundamental reliance on our people.

These are the elements which make up resilience. And resilience is not just one aspect of good business. It is core to being a good business.

We do now have a real understanding of the vulnerabilities of the system. We know that the effect of coronavirus on the lives of millions of people will be devastating. If we are to ‘build back better’ and to drive our post-Covid recovery efforts towards the world we want to build for our children then we must not be dragged down by the inevitable consequences of the pandemic. Instead, we must use it to re-start, re-imagine, and re-generate our businesses so that they can play their part in the resilient recovery.

The business case – stronger than ever

If the moral imperative for a sustainable, resilient recovery is not enough on its own, the business case is truly irresistible:

  • ESG-screened investments are outperforming the market even during the pandemic. Recent research findings from Morningstar, S&P Global Ratings and AXA Investment Managers suggests these companies are better equipped to withstand the pressures of uncertainty, with a mindset of agility and resilience borne of many years spent developing their understanding of risk and stakeholder expectations.
  • Companies with long-term strategy and planning capability are faring better. Consider the example, from the food retail sector, of Tesco, which had the relatively uncommon foresight to plan for a pandemic before it happened – and could immediately roll out protocols for safe operations that maintain social distance. There is even some emerging evidence suggesting that the sector in general held up under the massive pressure it has faced in part because planning for a no-deal Brexit led to increased capacity and diversity in supply chains, enabling retailers to flex quickly to meet the sudden changes in requirements.
  • The massive scale of the impact means there can be no going back. The coronavirus pandemic has shown, without question, how unrecognised systemic risk can upend an otherwise robust business, society or economy. All forms of structural risk underlie today’s business models, from economic inequality, to excessive financial leverage, and to exposure to climate change. Expect that the stress-testing we will have to do across society will challenge the very viability of sectors we once regarded as mighty and enduring. The catastrophic crash of global oil prices gives us clues as to what might occur.

In Sancroft’s decades of experience working with sustainable businesses, we have never seen such compelling and widespread evidence of the need for change. The only real question is the extent to which leaders in businesses large and small understand that resilience, sustainability, competitive advantage and profitability are all tied together. Only then will they know how best to ensure that their businesses rise to meet the challenge.

A sustainability strategy  – the only business strategy

We have seen that responsible, resilient and sustainable practices, far from being too costly or too niche to be relevant in advanced, diverse global economies, are the very structure that underpins business viability and success. We have seen that expectations change rapidly, and businesses must change as well.

The business response to the sustainability and resilience challenge is six-fold:

  1. Supply chains: Make them work better in a fast-changing world.

When the pandemic history books are written, will they focus on the empty supermarket shelves? Or will we learn more about how those firms that knew their supply chains outperformed the others, as they knew where things come from, how they are made, and who made them? Secure, resilient supply chains will become a new area of competitive advantage and a bulwark against future threats.

  1. Resources: Use less stuff, get more value.

Even before the pandemic struck, our attitude towards the materials we use was undergoing a revolutionary change. The shift in consumer attitudes to single-use plastic that prefigured a wave of product redesigning, packaging initiatives and regulatory overhauling is very much still underway. The simple fact is that some materials will become increasingly harder to obtain, or will grow prohibitively expensive, through shortages, taxes and fees. Businesses need to rethink their approach to resource use right across the board.

  1. People: no business without them.

Unemployment, reduced spending power, increased vulnerability to exploitation will press home the social responsibility of business. A successful business environment depends upon improving the opportunities for colleagues, partners and customers. Re-training and re-skilling will be key to resilience.

  1. Waste: Stop throwing away your profits.

Waste is a failure of value creation – the more material we produce that has no purpose, that must be landfilled or burned, the more value we have failed to realise from the resources used. Regulatory initiatives will continue to drive toward materials that are 100% recyclable, 100% recycled after use, and eventually, made from 100% recycled content – moving ever closer towards a future of zero waste. The sooner a business can reflect these aspirations, the more value it can accrue from the transition.

  1. Climate change: Adapting business now to the changes that are on the way.

The next frontier for managing systemic risk is surely climate change; indeed, many commentators have gone as far as to predict that the Covid crisis is nothing compared with the widespread upheaval and suffering we can anticipate from unchecked global heating. No industry is immune to its effects, which will affect availability of materials, regulations, consumer markets and a host of other issues which must be anticipated and managed if we are to build businesses fit for the future.

  1. ESG Reporting: Tell the markets what they need to hear.

While today a majority of the largest companies in the world are already engaged in sustainability or ESG reporting of some kind, this is widely perceived to be strong as a marketing tool and weak on substantial change. In the post-Covid world, pressure will increase to make such reporting more consistent, rigorous, subject to strong verification, and – above all else – mandatory. A sustainable economy requires sustainable investments and that demands more transparency than we have ever previously achieved.

 

A call to action

The evidence could not be clearer that sustainability, far from being a cost or a luxury, is really the only basis on which our institutions will survive in the future. But sustainability demands that business makes a profit. And that requires a level of ambition, a leadership mindset and a willingness to act boldly and act now.

People, planet and profit: this simple mantra could not be more pertinent than it is now.