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  • Writer's pictureSeema Sutradhar

Sustainability - a framework for action

Which right actions today can make entities sustainable for the long-term

Sustainability | Purpose, Transformation, ESG Metrics, RegTech
Which right actions today can make entities sustainable for the long term. Pic credit: GoGraph

There are many facets of sustainability and so many things that can be packed inside it. The word mostly brings to our mind the "green" ways of doing things like renewable energy, recycling, net-zero, vegan food, circular economy etc. But are these some of the many results of sustainability, or they are “The” goals? What is sustainability? And why is it such a big deal?

To me, sustainability is truly something that sustains for the long-term and what sustains for a long time is simple - something that is true, that is harmonious and takes everyone together.

It can be in simple ways as something that is correct in our conscience. We simply ask the question, is it the right thing to do? Or it is self-centred, or benefits a few or is it harming some in any way; is it giving profit to some at the cost of someone losing something or by them gaining a fair value against the price paid?

These things if were talked about just a few years ago say pre-Covid, would have been marked as spiritual leaders but today, this is commonplace. We can’t deny the impact we are observing on the delicate balance in nature that humanity had enjoyed for so long. The long term survival of this delicate balance is questionable today. The extreme weather events that we are observing nowadays is so frequent that has no precedence in the past. What we know about nature’s delicate balance is that it has a narrow threshold for stability and when that is crossed it will topple just like a pack of domino bricks. The question is have we crossed it or how close we are to that looking at the frequency of these extreme events. I feel that if the current frequency and intensity of extreme weather is not acceptable to us the levels of emissions should not be acceptable either. To me, it is a scary situation and something to pray to have some time from nature until humanity fixes the mistakes done in the past that led to this situation. We are insignificant to the power of nature, yet we have managed to accumulate so much dirt that it has impacted this delicate balance. To me, it is humanity’s pinnacle today. To preserve it if we all work together purposefully in one direction, we might reverse these harmful effects created by us in the past. But how?

You may agree that it is human activity that has impacted the long term balance in nature. Now we can divide the human activities mainly into human occupation/businesses and people’s lifestyle. If we put a closer look and examine the two to see if businesses are for the long term or human lifestyles, if they are rooted in harmony and something sustainable for the long term, we will recognise the issues. In simple terms, if these two activities are geared for the long term, nature couldn’t be impacted and pushed towards a shorter life of its delicate balance. The fact is that we are short-sighted, we look inside silos, and we think inward. To keep our house clean, we may throw garbage out of the window because that is not our problem.

Although businesses and lifestyles may look like two separate things, they are not so simple but highly interdependent and fuel each other.

How? We consume many items because the market is flooded with them without a comparable and acceptable option. So who is to be blamed? Who should pull the string? We should say no to the options, or businesses should think twice before creating those options and flooding the market. Would you put fries and chips and fill the table and expect your kid to go to the kitchen and grab a salad for themselves? It is the same thing; supermarkets have so many options for non-veg items, but nowhere to find any plant-based equivalent food. The simple choice we have to make about our actions with a high emphasis on businesses is while asking the question if it is the right thing to do? Is it harmonious and long term? Or does it take care of our house only and not the wider space? Everything that is part of the business and surrounds it and helps in its running, including funds, has to judge by this same stick. In the absence of regulations, one need not be waiting for it to be the sole thing to look towards while making this judgement. A lot sits in between. And this is the space where measurements apart from financial numbers need to focus on and what is now called ESG metrics - the environmental, social and governance measures of business’s performance. Infact today regulations are being formulated in this space as well.

Today electric vehicles are possible due to lithium batteries. Where does it come from, and where does it land into? Mining underneath the ground and thinking it is infinite and letting it pile in some other corners of the planet, again assuming the planet is infinite, is the biggest mistake done by humanity.

Digging petroleum and constantly injecting endless volumes of plastic will not reduce plastic pollution.

Heavily powered giant killer machines - the fishing trawlers are only creating ecological deserts, killing so many as by-catch and snatching livelihood of coastal communities who lived and thrived for centuries have no occupation today and are forced to adopt means that impact nature negatively.

We can talk about innumerable things here, but we want to put a framework to enable action, action to make businesses long-term and a lifestyle that is harmonious and broad-minded. This will result in fixing the wrongs done to nature, society and prosperity for all. When I think about this framework to enable action, I want to focus on businesses that will become the driver to influence lifestyles.

Again businesses do not exist in isolation. They are interdependent on so many parties in it - the first and foremost is the financial system and then the entire supply chain. Each entity in this inter-dependent mesh has a role to play.

If the focus stays on long-term sustainability by each of the entities in this mesh, everything will be in the right place. The jigsaw will be solved. This might sound idealistic, but there is no big thing needed to make it happen.

To begin with, if the financial system recognises that they do not want to be inward-looking and not focused on profit solely but they want to have a higher purpose, they would go thru the transformation journey that will result in innovation, digital transformation and culture shift. They would look for businesses that have a higher purpose and choose to support those that are already focused on long term success or have an agreeable plan to be so. The foundation thus will be already created. The good news is that sustainability linked investing, which considers the ESG aspect of a business's performance in measuring creditworthiness, is already sold to the financial world in such a short span of time.

The challenge they have now is how to measure businesses for their impact on Environmental, Social and Governance aspects and respond to them with authenticity and agility.

Data silos in banking and primitive ways of measuring risk (both credit risk and compliance risk) are the biggest issues that hinder their response in an agile way.

When we are talking about ESG metrics, we recognise that it is a process of transformation for businesses. There was hardly much talk on ESG measurement just a few years ago, maybe as late as pre-Covid and hence the businesses are not geared for such a focus. It is a transformation journey for them now. This journey would result in innovation, digital transformation and culture shift. Now measuring the quality of this transformation to enable their qualification for credit would be the right thing to do. Thus this process will generate qualitative metrics for ESG or the universal ESG metrics at the top level that can have further elaborations.

At the same time for the financial system to respond in an efficient, agile and purposeful way, they need to become risk-focused authentically and transparently, need a balance sheet that genuinely reflects decisions are made based on this accurate & transparent measurement of risk, a robust MIS system, innovative ways to meet with all regulations and incorporate ESG metrics while measuring creditworthiness for businesses. An innovative digital solution in this aspect for the financial system can only fulfil these needs.

On the other hand, the business entities in the entire supply chain need to become long term focused and not short-sighted.

The simple rule for the businesses would be to do the right thing, having a purpose beyond just making a profit. It is a shift in the outlook, and only experience or examples will prove to them that focusing on purpose does not mean you will be impacted on profit in the long run. It will not only enable profit at the same or with better results but also make the businesses harmonious and inclusive across all stakeholders - the customers, employees, suppliers, environment, society and the shareholders. It is the robustness in businesses that will make them last for a very long period of time. It is not only a win for themselves but also a win for the people, society and the planet.

To summarise, the problems of today can be fixed when the businesses transform to become long term focused. To begin with, the financial system needs to go thru this transformation while they support all other businesses doing the same - focusing on their purpose and embedding innovation, digital transformation and the culture shift that enables them to deliver towards their purpose. The quality of the transformation process will become the metrics for ESG at the top level that can have further elaborations. At the same time for the financial system to respond in an efficient, agile and purposeful way, they need to become risk-focused authentically and transparently, need a balance sheet that genuinely reflects decisions are made based on this accurate & transparent measurement of risk, a robust MIS system, innovative ways to meet with all regulations and incorporate ESG metrics while measuring creditworthiness for businesses. This framework will help generate action and bring the synergy needed to tackle every problem that we have today.

Update on 3 June 2023:

We have been able to create a significant part of this framework which we call leading FIs' and real-economy large corporates' systemic change for their Just Net-Zero Transition, at the same time leading to their long-term sustainability. It is deployed through std. NZ Transition Plans including Purpose, universal ESG metrics, etc, based on CTM and with variations for the leading FIs and real-economy large corporations. Additionally, the regTech product CBD (Compliance by Design) for corporate and investment banks, sitting outside of this std. NZ Transition Plans, further help them deliver towards their purpose more powerfully. We also hope to impact the remainder entities indirectly with the support of policy changes.

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