However, traditional risk management has actually not recognized many of the most critical business and societal risks. The conventional focus on short-term financial, strategic, and operational risks has often excluded “externalities” that have compounded and become risks and, in some cases, crises. Climate change to water scarcity to energy security to forced migrations now pose significant threats to business–and society.

What is needed now is sustainable risk management which includes the near and long-term social and environmental risks of the enterprise and its suppliers, buyers, even its own investments.

Fortunately, we have the powerful tools of traditional risk management. These tools, upgraded and repurposed for today’s grand challenges, can be used to recognize and better respond to the emerging, complex risks captured well by the Sustainable Development Goals (SDGs).

Sustainability and Risk Management

Risk Management is a business function used to build value by identifying and managing risks. According to the Society of Actuaries, sustainable Risk Management is “the management of ESG issues for the purpose of stakeholders’ shared value creation to realize sustainable development of the firm and the society it operates in.” Climate risk assessment is a good example of the kind of analysis done by sustainable risk management.

Until recently, sustainability and risk management have been separate departments or functions in a corporation that rarely interacted. However, for leading companies, these two areas work closely together. Risk managers tend to be better at identifying near-term, traditional sources of risk. Sustainability professionals tend to excel at identifying emerging non-traditional risks. 

On how risk and sustainability need one another, Risk Management Magazine, states: “Risk disclosures can be biased toward focusing on the issues the company can directly mitigate; sustainability disclosures can come off as marketing exercises that feature happy children and questionable data. The current divide is in no one’s interest, and global changes are forcing both parties and organizational management to rethink their approach.”