Royal Commission holds sustainability lessons for companies

Royal Commission holds sustainability lessons for companies

Steven Münchenberg in conversation with Footprint News

The banking Royal Commission has made boards aware that ignoring changing community expectations can lead to “explosive crises”, according to social licence and risk communication expert Steven Münchenberg.

Münchenberg is a director of social licence, risk communication and sustainability consultancy Futureye and was previously chief executive of the Australian Banking Association and policy manager with the Business Council.

He told Footprint it can be hard for companies to accept the need to change when their existing approaches seem to be working.

“I and others were warning the banking industry that aspects of what they were doing were becoming less and less acceptable in the community, and at some point, there was going to be a reckoning,” he told Footprint.

But senior people in the banks would point out that profits were rising, and they were prepared to accept what they saw as a risk of a few problems at the margins, he said.

The same view can crop up when executives are confronted with the risks of not raising sustainability standards, he said.

“You can go along to companies and say societal attitudes are changing, here is the evidence, here’s examples of where companies have misread that situation and it’s cost them significantly, you need to be changing your practices,” he said.

However, you can still encounter the view that “what we are doing at the moment works”, he said.

Boards now more wary of risks

Nevertheless, the banking Royal Commission and a general collapse of trust in large institutions has made boards and senior executives increasingly sensitive to the dangers of being out of step with the community, he said.

Boards are much more aware of the risk of “explosive crises arising from this misalignment with community expectations”, including on sustainability, he said.

That concern is well justified, because the consequences of poor environmental performance by a large company are now much greater, as it serves to reinforce people’s pre-existing attitudes to big business, Münchenberg said.

Big impact from minor changes

He added that companies needed to recognise that even if governments don’t implement large-scale climate or environmental policies, growing public concern can lead to important regulatory shifts.

For example, concern about climate change might not lead to a major policy package, but instead to “a whole pile of little decisions” that affect the way companies operate.

“The biggest danger to the banks of not resolving the trust issues with the community is that it puts political pressure on government to be constantly acting against them,” he said.

“Over time they become more and more regulated, which raises their cost base and restrains what they can do,” he said.

Likewise with environmental concerns, the result of not taking into account changing attitudes can be “little barriers, little blockages, little bits of regulation that overall, over time, change your business model in ways that you struggle to control”.

Laggards face increased risks

Münchenberg acknowledged that there are still circumstances in which laggards can gain a commercial advantage over peers who opt to show environmental leadership.

Back in the 1990s, when BP and Shell started thinking about climate change risks, Münchenberg noted he was told Exxon executives had said to the two companies that they were going to exploit the competitive advantage available to them by what they saw as a “flight of fancy”.

Their view was that if BP and Shell turned out to be on the right path, Exxon would have made enough money in the meantime to be able to catch up.

However, it’s a high-risk strategy, he said.

At some point poor performers that haven’t planned ahead will be forced to act and they will then suddenly have to make large investments or go out of business, he said.

This article is republished with the permission of Footprint News, an online environmental compliance newsletter for business:

October 2018