The real business risk is ignoring sustainability

As political backlash against ESG continues in some quarters, boards may assume the pressure to prioritise sustainability has passed. But pulling back now could mean exposing the business to far greater risks and result in missing out on opportunities.

It’s a common mistake to treat sustainability as separate to risk. The truth is there’s no such thing as a sustainability risk, just business risks. Disrupted supply chains, exposure to modern slavery, emissions-heavy operations that turn off capital or customers: these have the potential to significantly affect the business.

Directors who fail to integrate sustainability into standard risk processes may be overlooking significant threats to long-term performance, regardless of the political sentiment at any given time.

The risk of sidelining sustainability

When sustainability is treated as a ‘nice to have’ or a compliance exercise, rather than a core part of enterprise risk management, boards risk overlooking the threats these issues pose to continuity, capital and competitiveness.

Consider supply chains. If your suppliers are exposed to flooding, heatwaves or rising sea levels, your business may be unable to deliver products or services on time. If a key supplier is found to be using forced labour, the reputational damage can be swift and severe. Mapping your supply chain is a fundamental business continuity issue, and it also helps you understand your emissions and human rights risk.

In a global market increasingly shaped by sustainability expectations, this isn’t hypothetical. The United States already bans imports linked to forced labour. The European Union’s ban will be applied from 2027. Many jurisdictions, including the United Kingdom and Australia, require modern slavery reporting and climate-related disclosures. If New Zealand exporters can’t meet these expectations, their goods may be rejected, not just by Customs, but by customers around the world.

Greenwashing litigation is also on the rise, with regulators and stakeholder groups increasingly examining corporate disclosures and advertising.

The real cost of doing nothing

It’s natural to scrutinise expenditure in tight economic conditions. But while cutting back on sustainability initiatives may improve the bottom line now, the longer-term risks – litigation, supply chain breakdowns, stranded assets, reputational crises – can cost far more in the long term.

Instead of asking “Can we afford to act?”, directors should ask, “What is the cost of not addressing this risk? What would it mean if tomorrow’s headlines were about modern slavery in our supply chain? What would be the fallout for customer loyalty, investor confidence, brand value or regulatory scrutiny?”

Boards typically triage risk based on likelihood and impact, and should be taking the same approach to sustainability-related risks, prioritising those that are most likely and/or most harmful. This ensures sustainability is integrated into risk culture and reduces the chances of critical issues falling through the cracks.

It also misses the strategic opportunity in a softer regulatory or political environment – if competitors are taking a more relaxed approach to the immediate risks and are taking fewer steps to address them, this presents an opportunity for businesses taking a more proactive approach.

Embedding sustainability into governance

Many boards have sustainability on the agenda, but not always in the right place. Too often it appears under ESG or compliance, rather than under strategy or risk. That placement matters. It subtly signals that these are soft issues, not drivers of performance.

Instead, directors should require sustainability factors to be embedded across key governance processes:

• • Risk registers should include climate, nature and human rights exposures, not as a standalone category but integrated into operational, legal and strategic risk.
  • Board papers should assess how proposed initiatives affect emissions profiles, resource resilience and social impact.
  • Scenario planning should include disruption from both physical environmental impacts and regulatory shifts in key export markets.
  • KPIs and incentives should reflect the long-term value drivers that sustainability represents.

This doesn’t require reinvention. Many boards already have effective governance processes in place. The next step is to ensure sustainability is fully integrated into them.

Staying competitive in a changing market

New Zealand’s trading partners are rapidly moving on climate and human rights. More than 80% of New Zealand’s exports by value go to countries with mandatory climate-related disclosures and over 50% go to countries with modern slavery reporting requirements.

Boards that want to remain globally competitive must treat sustainability as a market access issue. Emissions intensity, labour practices and environmental performance are increasingly part of procurement decisions and investor due diligence. As trade rules evolve, businesses with poor sustainability performance may find themselves excluded from key markets or losing customers.

A director’s mandate

Ultimately, the director’s role is to promote the long-term success of the company. That means ensuring the organisation can anticipate and respond to both opportunities and the risks that matter most, regardless of the label.

Sustainability isn’t a limited project or a branding exercise. It’s a governance issue. Directors who lead from the top and embed it across the organisation will enhance reputation, resilience and future value.