Content area
Full text
Sustainability and corporate social responsibility are increasingly becoming mainstream business practices. For many companies, the discussion is no longer whether to be more sensitive to stakeholder impacts and needs, but how to do that in a complex, profit-oriented enterprise.
Some companies focus primarily on minimizing risks related to pollution, product quality, safety, and unacceptable actions by suppliers in foreign factories. Others, like The Home Depot, with its Eco Options line, and GE, with its commitment to "Ecomagination," seek new opportunities inspired by these risks.
Managing social, environmental, and political risk is challenging for any company. But rigorously incorporating innovative practices into a wider risk management and strategy framework can mean the difference between devastating loss and as-yet-unrecognized opportunities.
These risks are too often ignored, partly because of the complexities of measuring and integrating them into operational and capital investment decision making. Social, political, and environmental risks are often relegated to the footnotes, which aren't included in financial calculations. Reporting these risks in monetary terms is an important step toward integrating them into financial planning and corporate strategy. In so doing, they climb from their current position as footnotes to the financial calculation to a position that accurately reflects the devastating impact they can have.
Until now, financial managers have lacked a suitable methodology to explicitly measure and integrate these risks into existing capital resource allocation approaches, including return on investment (ROI). But transforming the discussion of political and social risk from a largely qualitative to a quantitative one emphasizes their relevance.
A NEW, COMPLEX REALITY
Let's look at some of the extensive social, political, and environmental risks that companies face. U.S. companies that emit large amounts of greenhouse gases face potential taxation under the lieberman-Warner bill, now in the Senate. International toy companies and local retailers are grappling with falling sales resulting from lead contamination in playthings produced in China. Small and large companies face the specter of nationalization or forced partnership in Venezuela, Bolivia, and other areas as parts of Latin America drift farther to the left.
A changed international political landscape heralded by September 11,2001, and followed by bombings in London, Madrid, and Mumbai; technological leaps creating rapid communications networks; Hurricane Katrina and other natural disasters; and corporate scandals have all broadened...