The Future of Sustainable Business: Turning Risk into Resilience

The future of sustainable business is bright, but today’s uncertainty is changing what it takes to get there. To realize the opportunities of tomorrow, Canada’s businesses must rise to the occasion and navigate uncertainty while protecting people, planet and profits.  

Planning for uncertainty helps companies navigate volatility and assess potential risks and opportunities, including those from a changing climate. Done right, it allows businesses to understand the future scenarios that may impact them, collect relevant decision-useful data and act accordingly. Armed with better information, firms can manage risk more effectively, unlock new value from sustainable business models and more confidently make long-term investments.   

Turning Sustainable Business Risks into Opportunities

Turning risk into opportunity requires going further. Smart decisions need a constant flow of good-quality data and an openness to iteration, failure and learning. Recent research from our Smart Prosperity Institute (SPI) colleagues adds to the growing evidence that this approach is good for business—supporting operational efficiencies, access to capital and regulatory preparedness.  

Across our research programs, SPI looks for ways to translate today’s challenges into tomorrow’s opportunities by strategically embracing complexity and variability. We don’t have all the answers, but three strategies can help clear-eyed decision makers turn risk into resilience: recognizing trade-offs, avoiding lock-in, and getting the incentives right.  

Recognize Trade-Offs in Sustainable Business Decisions

Good intentions do not necessarily lead to good outcomes. Failing to account for the full range of environmental impacts can undermine progress by alienating those who value environmental protection more broadly. 

Pursuing decarbonization sometimes means weighing real trade-offs between reducing emissions and increasing environmental and social pressures elsewhere. Businesses that shift towards clean energy by adopting solar panels and batteries, for example, may lower their emissions while also raising questions around critical minerals and waste—questions that our Materials and Energy team is working to better understand.  

The answer is not to avoid these investments, but to approach them with the intention of achieving the best possible social and environmental outcomes. This requires a willingness to look beyond narrowly defined objectives and silver-bullet solutions, and to instead embrace the full complexity of the natural world and our place within it.   

Avoid Lock-In 

Sustainability is not as simple as substituting one type of technology for another or switching to a different input. It often requires adopting a more complex system or process. The good news is that these more complicated systems are more resilient. Replacing fossil fuel-dependent electricity generators with hybrid systems that draw power from multiple clean energy sources is a good example of this.  

Chasing a single solution can lead to lock-in and dependency, whereas pursuing multiple paths can unlock new opportunities while increasing resilience. Choosing one technology, product or process over another is not only a technical decision but also a bet on future material availability, price stability and supply chain resilience. If supply chains for key inputs are disrupted, the consequences can cascade through production costs, competitiveness and investment returns.  

Diversified supply chains are a long-standing risk-mitigation strategy, but resilience requires diversified systems too.  Resilience requires pursuing a web of alternative strategies, rather than refining a single linear business model. The broader lesson for business leaders is to look beyond short-term performance and cost and ask whether today’s choices could leave their company exposed to tomorrow’s resource bottlenecks and strategic dependencies. 

Getting the Incentives Right for Sustainable Business Growth

Investing in sustainability is harder than it should be. This is true for businesses themselves and for investors.

Canada’s planned sustainable investment guidelines (also known as a sustainable finance taxonomy) will help by establishing criteria for when economic activities qualify as “green” or “transition-aligned”. (New to the concept of a sustainable finance taxonomy? Check out our explainer.)

For sustainable businesses, a taxonomy will make it easier to attract investment by sending a clear, credible market signal that its activities align with sustainability objectives. For sustainability-minded investors, a taxonomy reduces the time and effort of identifying impactful investments.  

Sustainability was never just a “nice to have”, but the business case of preparing for the future has never been clearer. Smart leaders should focus on lowering the risks of innovation and the adoption of sustainable practices and technologies. Adopting robust data collection, disclosure, and traceability tools can help firms understand the full implications of their decisions across the value chain.  

How Material Passports Support Better Business Decisions

To continue our focus on balancing impacts, a new tool called material passports makes it easier to track where products are made, what materials they contain (including critical minerals) and how those materials can be recovered or recycled at the end of life.

Material passports are being adopted for electric vehicle batteries in the EU, but they are not an entirely new idea. Diamonds, for example, have long been accompanied by documentation that helps verify their origin and quality.

Businesses can use the information in material passports to make decisions such as selecting a product based on the cost-effectiveness of recycling it or whether it was produced in a country with good labour and environmental standards, like Canada. 

 

Meeting the Moment 

While the journey towards sustainability is neither obvious nor easy, recognizing trade-offs, avoiding lock-in and aligning incentives are good places to start. Pursuing sustainability makes good business sense in an uncertain world, and businesses that strategically plan for resilience are best poised to lead and win.