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Risk & Sustainability Continuity Forum Policy Working Group Risk, Sustainability & Net Zero [SG3]2023Guidance on using risk principles to accelerate the pace of transformation effectively Copyright Continuity Forum 2023 | all rights reserved

Risk management & sustainability report 2023CONTENTSPreface1Executive Summary2Overview of report guidance 3Characteristics of Sustainability Risk4Communication, trust and reputation8Determining your value focus6Prioritising decision making7Setting your direction5Signposts9References10

At its’ heart, risk management is about making informed, evidenced based decisions that create and protect value. Organizations looking to focus their sustainability and climate action can gain significant benefits by using the principles of risk management. By implementing and developing a strategic, risk-based approach to sustainability that is embedded in the organization, it can act immediately to improve the effectiveness of planning, while managing the changing needs of the organization and its performance over the longer term. This approach largely uses existing systems and resources but applied with clear objectives set on transformative climate action. To drive thechange we need to seein the world,our first stepsneed to besimple,scalable andproven.This document contains useable, actionable advice, based on theprinciples of the world’s leading risk management standard – ISO 31000– that can help your organization flex and adapt to the inevitablechanges ahead. Most management processes, especially those based on ISO standards,have the capabilities needed to navigate most of the change needed. Unfortunately and all too often though they lack the focus, controls andassurance elements needed to really align operations and performancein a landscape of evolving stakeholder expectations. Risk management & sustainability report 2023Preface1.International consensus agrees that the global economy must evolve at scale and pace to address a myriad of issues rooted in climate risks and threats to the sustainability of wider society. Action is underway around the world to create the skills, tools and resources that are needed to create the transformation the world needs. This document is a part of that wider effort and one that can be quickly and effectively applied across all kinds and sizes of organizations anywhere in the world.Millions of companies around the world have already invested in risk management toimprove their performance and ensure their organizations objectives are being met.Levering this investment on a global scale with a focus on the climate threat facing uswould accelerate the pace of change by identifying and enabling the actions that candeliver effective results more quickly across industry. Russell Price, Chair, ISO Committee for Risk Management | TC262If we are make to substantial progress against sustainable development andgreenhouse gas emission goals, we need to change at pace and scale now. It is clear from more than three years of work with industry and other stakeholders that byadapting and applying the principles of the ISO 31000 framework organizations cansuccessfully evolve, addressing threats to your business and developing newopportunities quickly. 3

Risk management & sustainability report 20232. Executive SummaryThe aim of this document is to help organizations adapt to changes that affect whatneeds to be done to be a successful organization today.What does it mean to be a successful business today? For years, the answer has been a good and consistent return to shareholders. Over thelast twenty years however, a different understanding has emerged: to meet the needsof all stakeholders, whether they be investors, employees, partners, customers,suppliers or society at large. Profound challenges are facing the world, especially climate change, pressure onresources, inequality, loss of biodiversity, pollution, challenges to democracy and theuse and abuse of information. This means that those organizations still operating toolder models of business are risking failure, whereas those embracing a broader andforward looking view are realising significant new opportunities. Today’s expectations on organizations include providing commitment to principles,clarity of purpose and demonstrating their true sustainability credentials. Thisdocument, along with other supportive frameworks referenced, describes approachesyou can use to deliver sustainable success. The fundamental question has changedfrom ‘how much money do you make?’ to ‘how do you make that money?’ In other words, sustainability pays.Sustainability, success and senseThe word ‘sustainability’ strikes fear into the hearts of some, with concerns that money will be wasted (at least over the short term) resulting in reduced profits. In practice, nothing could be further from the truth: evidence isemerging that those that take a longer term, more sustainable strategy are more successful. In the UK, sustainable sources of power such as wind and wave are now cheaper than legacy hydrocarbon sources. Adapting theorganization tocope with globalchange is critical.Failure to evolvewill reducecompetitivenessand risk survival. Sustainable business is good business.Whilst this sounds fine for major corporations, the perception persists that sustainabilityis both (a) complicated and (b) only suitable for major firms. This is a misconception. Theguidance in this document sets out how small, medium and large enterprises can take abalanced, structured and strategic approach to build their long term sustainable success.. Risk Management and sustainabilityThe good news is that sustainability (also referred to as Environment, Social and Governance, or ESG) should not place an additional burden on your organization’s existing systems and processes. The document describes how properly designed and implemented risk management can be used to immediately define and help you achieve sustainability targets. 4

Risk management & sustainability report 2023Executive Summary continuedIs grounded in an organizations core purpose, strategy and its approach todecision making,Considers not just a short term perspective, but also value over the medium andlonger terms too,Recognises risks can present significant opportunities as well as threats, Applies risk management across the enterprise, from top to bottom, lookinginwards and outwards, and considering past experiences and future trends.The effective manager takes a holistic approach that:These apply equally to sustainability management. A pragmatic risk managementapproach can drive the design of your sustainability objectives and strategies, informhow you protect against any potential threats, and how you capitalise onopportunities. The principles, framework and processes used to structure the guidance offered inthis document are based on the international standard ISO 31000:2018 ‘RiskManagement – Guidelines’, helps the organization, and risk and sustainabilityprofessionals ensure not only a fit with their business, but with millions of othersaround the world. The established capability of this standard helps organizations toact and address the issues without ‘reinventing the wheel’, while quickly leveragingexisting resources and processes and it can be used in the field of sustainability. In the past our approaches to managing for sustainability have oftenbeen far too siloed. This placed limits on the benefits gained andadded complexity and cost. We advise that this should be replaced bya much more integrated objective focused approach, recognising thatall aspects of an organizations operations and process contribute tolong term survival and ultimately its' success. Standard risk management tools can be focused on action now.We feel that there are very significant benefits to be gained by adopting a goodpractice risk-based approach, along with reference to, and use of internationalstandards covering areas such as Quality, Resilience, Compliance and Governance.This can help you scale your efforts within frameworks that will help with the design,implementation and development of sustainable business models on the journey to amore sustainable future.Distilling knowledge from informationIt can be difficult to know where to begin, but looking at the widely acknowledged setof seventeen United Nations Sustainability Goals (UN SDG’s) is a good starting point.This document signposts a selection of useful information sources on sustainabilityfrom materials in the public domain.Risk and sustainability, when applied in a multi-disciplinary, holistic and inclusive manner, with the minimum of technical jargon, can really help achieve better progress towards genuine sustainability even in the most complex and challenging environments. 5

Risk management & sustainability report 2023Executive Summary continuedSustainability Communication and Reporting.Evidence has emerged of some organizations painting unduly positive pictures of their sustainability performance (so-called ‘green-washing’). Such organizations risk being penalized by their stakeholders: customers stop buying from them, employees won’t work for them, and investors won’t invest in them. All communications on sustainability should be open, honest and evidence based. The formal reporting environment is evolving, so every organization must remain alert to new requirements which apply to their operations. It is important not to fall prey to media effects, where your reporting focus is distracted by the current ‘flavour of the month’ - for instance it could be that sustainable employment practices are more relevant to your activities than the focus of current news agendas.This document does not pretend to be the ultimate treatise on the subject: like any good approach, it will evolve as knowledge builds and practices evolve. The key is to be open minded and encourage new good practices as the field evolves, ensuring that your organization embeds practical sustainability approaches that result in tangible, timely, positive impacts.Transformation and trustToday, management systems are already in use around the world driving improvements across industry and wider society. Standards are widely recognized and create trust and transparency that can be backed up with genuine assurance capabilities. They are a significant feature of international trade with over 165 National Standards Bodies coming together under a global democratic organization - ISO the International Standards Organization. Focus your systems on positive change Most major companies have risk managements systems in place based on the goodpractice guidelines framework of ISO 31000. These can provide powerful, objectivebased capabilities that can be used to identify and measure your impact on globalsustainability topics and help determine the measures that can be taken to transformyour approach.Managing Sustainability is not just good business - it is the only option for our future.Using resources wisely is going to be critical in the next two decades and key to this isensuring the best decisions are based on the right information. Time and moneyneeds to be invested now in how our organizations work. Net Zero and othersustainability targets are extremely time sensitive: the quicker organizations,regulators and governments act, the better. Rather than trying to design approaches to every sustainability goal, manyorganizations start by focusing on a select group of between four and eight which aremost relevant to their activities. Subsequently, they may broaden their scope. Thisprioritized approach is the same as that used in risk management to determine whereto focus your efforts most in the creation and protection of value.6

Environmental, Social, Governance (ESG).Corporate Social Responsibility (CSR).3 P’s – People, Planet, Profit, also called the triple bottom line.Other common terms which you may have heard and be familiar with, which are covered within this document’s view of sustainability include:Sustainability is not a new expression – it has been around for many years and its origins are commonly accredited to the 1987 United Nations Brundtland Commission report “Our Common Future”. That report defines sustainability as:“… meeting the needs of the present without compromising the ability of future generations to meet their own needs”.Risk management & sustainability report 20233. Overview of report guidance The aim of this document is to help organizations adapt to changes that affect whatneeds to be done to be a successful organization today.Sustainability is of growing importance for all of us. Everything we do, as individualsthrough to organizations, impacts sustainability. Much has been written on the importance of sustainability and what organizationsshould be doing. Similarly, there is a wealth of risk management guidance. This document seeks to provide guidance to organizations, senior management andrisk and sustainability professionals that can be used to help them address specificchallenges they may experience in areas where sustainability meets risk. It aims to helporganizations succeed sustainably by directly identifying actions that can beimplemented quickly with existing systems.This definition is used in this document. It covers a broad view and embraces the UN SDG’s and other commonly used terms. The relationship of ESG with sustainability is further illustrated in the image below:Figure 13.1 Context3.2 Sustainability7

Embedding sustainability and risk ineverything you do. Including in your corepurpose, see the section “Setting yourdirection” (Section 4).Identifying where to focus, see the section“Determine focus to deliver greatestsustainability” (Section 5).Balancing different aspects of sustainabilitywhen making decisions, see the section“Sustainability risks and impacts decisionmaking” (Section 6). Monitoring, review and reporting onsustainability performance and risk, includingmanaging “greenwashing” risk, see the section“Sustainability communication:accountability, trust and reputation” (Section7).The document is broken into a number ofsections. It starts by looking at the “Nature andCharacteristics of Sustainability Risk” (Section 3)and the implications for managing sustainabilityrisk. It then focuses on the identified challenges;namely:Risk management & sustainability report 2023The document does not state how you and your organizations should work, rather it looks to provide you with questions to ask of yourselves and ideas on what you can do.It includes examples and case studies to help you think about the challenges. Based on these you can decide on a road map providing a direction, milestones and targets needed to succeed sustainably. Additionally, the document sign posts other supporting materials, see the appendix “Signposting” (Section 8).The guidance contained in thisdocument builds on researchundertaken through documentreviews, and interviews, plus roundtable discussions with risk andsustainability experts. The research identified areas manyfind challenging along with moredetailed discussions on waysorganizations committed tobuilding their sustainability couldaddress them.The project was developed by theContinuity Forum via its' PolicyWorking Group and Study Group(SG3). Work commenced in 2019. The UK Standards body - BSI -joined the work in 2020 with liaisonthrough the Risk ManagementCommittee (RM/1).8

Risk management & sustainability report 2023Due to their nature and characteristics, sustainability risks may differ from other types ofrisk you have historically focused on.4. Nature & characteristics of sustainability riskCase Study: Site shutdownA physical site has become obsolete, and is using environmentally old unsustainable processes and needs to be shutdown. However, it provides significant employment directly and indirectly in the area. The organization could close and walk away with the view that they offset sustainability impact and risks to the community through improved environment outcomes. Such an approach risks damaging the reputation of the organization with potential consequential performance impacts. The moral element cannot be ignored. The organization needs to proactively manage the societal impacts (unemployment) and the associated risk to the community of their decision; they need to embrace and be part of the solution.May be intangible and have a strong moral element, both of which need to be considered in decisions (see Case Study: Site shutdown).Are very broad, as illustrated by the UN having seventeen very different sustainable development goals (see the chart at the end of this section).May appear suddenly on your agenda. In hindsight, it is likely they were there (and building in importance) all along. You may not have not recognised them. Their perceived sudden appearance may be because:Their importance is heightened by current media, political and social agendas. The sustainability impact / risk is unexpected and identified late or by chance (see Case Study for Halogenated Hydrocarbons).Initially they are immaterial, for example their source, say a new technology, has a small footprint. Over time they become material as the use of that technology becomes widespread . Sustainability issues and risks:a.b.c.May be global in their consequences requiring an aligned approach to theirmitigation across organizations. Once identified and prioritised, signify operational changes. For example, whereraw materials are sourced or how they are used may change ways of working,causing costly disruption or reputational damage.Are potentially already identified and included in existing decisions and actions butnot explicitly valued. May have long time horizons (e.g. the impact of climate related risks can beupwards of 30 years). It is not about when the risk might happen, it is about whenthe effect occurs and hence the need to take action well in advance of the impact.The likelihood, pace and uptake of relevant technologies is uncertain. This adds to the need toproactively assess and determine how to manage the effects on sustainability risk.Having global impact may have the added challenges that the impact is greatest well awayfrom the source and owner of the risk, and what your organization contributes appearsimmaterial, but when calculated across all organizations and tiers it can be revealed to bemassive. 9

Case Studies: Aviation seeking to reduce their impact on the climate and minimize the associated risksAviation companies are investing to find both long term and shorter term means to reduce their impact on the environment. Synthetic fuels are seen as a potential shorter-term solution, with the industry looking at other potential longer term solutions such as hydrogen or batteries. Here, investment is needed for the alternative potential solutions with the synthetic fuel being only a milestone in the journey. Sustainability issues and risks, once identified,whether they “appear suddenly” or not, or gain anincreased “importance”, require visible, quick andmeaningful actions as failure to do so risksnegatively impacting your organization’s imageand reputation. As sustainability issues and riskscan arise from the raw materials, technologies andassets you use and operate, it may not be possibleto address them with a single immediate action.Short-term or medium-term, solutions that fullyaddresses them may not be available today. Anadequate response may be a journey over severalyears which requires research, innovation and theassociated long-term investment, and along whichprogress can be demonstrated. Investing time and money to continually seek better solutions, where the benefits whichmay be intangible or only realised over the long-term, can make justifying theinvestment challenging. However, being transparent, telling the story and reportingwhat you are actually doing can positively impact your organization’s reputation andhence performance. Transparency on investments is an underlying strength that needsto be valued and rewarded by investors and other stakeholders, and prioritised over infavour of short-term profiteering.In fighting fires Halon 1301 proved an effective material for extinguish fires. The use of Freon in refrigerators enabled food to be kept longer and thereby had a positivesocial impact. Case Study: Halogenated Hydrocarbons (Halons) and the Ozone LayerThe use of halogenated carbons, which are ozone depleting substances formerly found inaerosols fire suppression and refrigerant systems, was initially seen as a good solution toseveral challenges/problems. For example: The sustainability impact and associated risks, however, were not identified until they startedto materialise. In the mid 1980's a hole in the ozone layer was discovered. While the loss ofozone was gradual, the realisation of the loss and the identification was sudden. Investigative work determined that the free radicals created by Halogens reduced the amountof ozone in the upper atmosphere. The loss of ozone increased the people's risk of harm by thesun. Without action, this risk would keep growing. What was initially seen positively was nowrecognised as the source of a (sustainability) risk.The risk was considered extreme. The international community was uncharacteristically quick toact, perhaps because the seemingly sudden appearance of a "hole" in the atmosphere made forsuch a compelling and easily understandable story. Within two years, in direct response to theNature article and corroborating studies, 46 nations signed the Montreal Protocol, pledging tophase out substances known to cause ozone depletion. Risk management & sustainability report 202310

Case Study: Halogenated Hydrocarbons (Halons) and the Ozone Layer All 197 members of the United Nations would eventually ratify the treaty, and as a resultscientists now predict that the ozone layer will return to its pre-1980 levels before the end ofthe 21st century. The relative speed and unanimous adoption of the treaty around the world led former UNSecretary-General Kofi Annan to call the Montreal Protocol "perhaps the single most successfulinternational agreement to date."cont'dReality CheckAre you valuing intangibles in decisions appropriately?Are you considering sustainability in a broad enough manner?Are you actively monitoring media, political and social agendas ? Are you looking for early indicators or weak signals?When managing your risk, are you not only implementing short term fixes,but also proactively working on long term solutions? Are you communicating what you are doing to address sustainability issuesand risks to the organization and its stakeholder base appropriately?The challenges in identification andassessment of sustainability risk with theintroduction of new technologies in an erawhere speed of change is high and theuptake of the technology uncertain, drives aneed to continually look ahead. This means you need to review youroperations, services and products and alldecisions made for their sustainability risksand impacts on an ongoing basis. With time and experience yourunderstanding of the sustainability risks andimpacts will grow. It is likely you will need tochange what you are doing as betterinformation and capabilities becomeavailable. Risk management & sustainability report 2023This will help in your management of specific sustainability issues, such as greenhousegas emissions. 11

More UN SDG information and supportYou can get more information on UN SDG workby clicking on the video or visiting:https://www.un.org/sustainabledevelopment/ (opens new windows) Reality CheckAre you continuously revisiting, rethinking and challenging what you aredoing (the way you operate, the raw materials you use, the technologies youuse, your interactions with suppliers, society and other stakeholders, etc.) toidentify sustainability issues and risks which are new, previously notrecognised, or increasing? Are you monitoring for approaching tipping points, where the magnitude ofan activity means negative sustainability impacts become material orunacceptable?There are sustainability risks which have a nature and characteristic that needs frequent rethinking and revisiting. Their management cannot be addressed by taking a business‑as‑usual approach. Thought needs to be invested to understand them,manage them and enable good decision making.Risk management & sustainability report 2023United Nations Sustainability Development Goals 12

When the research asked “what is most important for an organization to succeedsustainably?”, the experts emphasised the need to embed sustainability into the corepurpose of the organization.With sustainability as a fundamental element of your core purpose, your organizationwill more naturally embed the key management elements needed to be sustainable ineverything you do. Sustainability will be embedded in your strategic goals andobjectives, your systems and operations, and your behaviours, decisions, and actions.Sustainability will become part of the measures you use to monitor and assess yourorganization's performance. An organization’s core purpose should provide the focusthat ensures that sustainability is a driver in how the organization operates and thedecisions it takes. Risk Management helps manage the risk of unacceptablesustainability performance and adverse sustainability events arising from theorganizations’ decisions and activities. Simply put, if sustainability is not a core part of your purpose and what you and yourorganization are seeking to achieve, your chance of operating reliably, productively,and successfully, over a longer timeframe is low. The effort, energy and resources willbe spent ineffectively, reacting rather than leading and transforming. You are at riskof your stakeholders seeing your sustainability performance as unacceptable, withconsequential damage to your organization’s brand, reputation and, hence, businessperformance and value.While it may be seen as obvious to do this, the first step in setting your direction tosucceed is to make sustainability a key element of your organization’s core purpose.You need to ensure that promises made to stakeholders about your organization,whether this be in purpose, vision and values statements or other equivalentdocuments, embrace sustainability.Risk management & sustainability report 2023Is sustainability part of your core purpose and clearly expressed in your purpose,vision and values or equivalent statements?5. Setting your direction5.1 Embed sustainability into your core purpose “The Body Shop exists to fight for a fairer, more beautiful world. This is our purpose, and it drives everything we do. Our beliefs are everything to us: that business is a force for good, theempowerment of women and girls and the belief that everyone is beautiful.Our purpose is to make sustainable living commonplace.It’s why we come to work. It’s why we’re in business. It’s how we inspire exceptional performance.Our purpose: To continue building together each day a healthier, more accessible energy model, based on electricity. This expresses:Commitment with the people's well-being and the preservation of the planet... In many organizations, their core sustainability and value proposition are clearlyexpressed through a purpose, vision and values or equivalent statements. Below aresome examples:13

Risk management & sustainability report 2023Organizations define their direction by their vision, their strategy and the associated goals and objectives[1]. With sustainability as part of your core purpose and vision, your strategy should include goals and objectives aimed at delivering more sustainable outcomes over the short and long term. The sustainability related goals and objectives could be called your organization’s “sustainability promises”. In this document, goals are what you are seeking to deliver over a long period, while objectives what you are what you are seeking to achieve over the short to medium term and are measurable. A goal is usually divided into several objectives spread over multiple time frames.A good practice when setting your strategic goals and objectives is to start by thinking about the context within which your organization operates. Understanding your context is something all organizations undertake in some manner or another, whether it is the managers in a small business informally sitting back and discussing what they are hearing from their customers, suppliers, newspapers, etc. or leaders of large organizations undertaking surveys, collecting, and trending data, conducting formal stakeholder interviews, etc. With a sound and broad understanding of your context which builds on your core purpose, you can set your goals and objectives to target sustainability success.5.2 Your sustainability promises, creating the foundation for them Sustainability, inclusive of all its aspects.Your organization; consider its supply chain (inputs) and your products orservices (outputs).Identify what sustainability promises you (may) have already made.Assess and review your current sustainability performance.Look into the future:Where is the world going? What are the future technologies? How are the expectations of your stakeholders changing and what can you do tomeet them?When thinking about your sustainability context and your context, take the broad view.Think about: 5.2.1 The broader viewSustainability is very broad in nature, it is likely that some aspects may not applydirectly to you. However, you should expand your thinking to include how effects in the use of yourproducts or activities in your supply chain may contribute to the bigger context thatmay indirectly affect others. The guidance around each of UN’s sustainable development goals can help you framethese issues and can provide potential opportunities for you and your organization toact positively.14

Reality CheckDo you or can you produce goods and services that will contribute to thewellbeing and sustainability of society as a whole and achievement of theUNSD goals?Are your goods and/or services making it harder for you and others to achieveany of the UNSD goals, either locally or globally? With the growing importance of sustainability will your brand and currentgoods/services become unwanted or obsolete, either locally or globally, due toyour negative sustainability impacts and risks?Are changes due to man’s current un-sustainable way of living (e.g., increasedflooding as a result of climate change) going to impact you and your supplychain’s operations?The answers to these questions may be pointers of emerging threats to you and your organization. Review and assessment will also identify opportunities to improve performance, competitiveness and long term success. The sustainability footprint and risk associated with your products/services are not only those of the operations you directly undertake. Your most significant sustainability impacts and risk may be upstream or down stream of your operations. The sustainability performance of your supplier or how your customers use your products or services can impact on you and your organization. Good practice today takes a lifecycle view in identifying where interventions can deliver the greatest sustainability improvement, for example, moves to a circular economy. Your sustainability targets should be dynamic (kept under regular review and ambitiously revised) and changed as better solutions become available with, for example, technology changes or the discovery of new evidence. This requires that your sustainability footprint should be continuously revisited and reviewed to ensure it is accurate and aligned to your scope and purpose.Organizations with risk management systems or processes in place should look at ways toinclude sustainability objectives within their risk reporting systems. Most standards basedsystems can be easily adapted and provide enhanced functions including controls, mitigationand detailed reporting. This approach will provide management at all levels with greater insight and accuracy on theeffectiveness of their work and demonstrate commitment to stakeholders. 5.2.2 Identifying current sustainability promisesGiven organizations interact with others and operate in a regulated world, it is highly likely that you and your organization will have committed to delivering sustainability objectives, for example, as part of a major contract, within your organization’s policies, or to meet a regulatory requirement. Such promises not only reflect sustainability priorities; they may also be built on when setting your goals and objectives, or further policies.Risk management & sustainability report 202315

You can can easily include sustainability metrics and indicators into your existing RiskManagement System by creating appropriate categories, descriptions and criteria. Inaddition, you can develop more detailed information to track progress by adding in referencedata that is appropriate to the activities and processes being managed. By using existing systems you can cost effectively increase their insight and reportingcapabilities at minimal cost, at scale and pace, right across the most complex organizations. Reality CheckHas your organization committed to sustainability targets to customers? Have you made sustainability commitments in your annual reports or on yourorganization’s website(s)? Does legislation require you to report on sustainability performance? If so howare you measuring and monitoring what are you reporting on? Do you have sustainability polices, (e.g., for modern slavery)?5.2.3 What is your current sustainability performance?Understanding your organization’s current sustainability risks and impacts for the broad range of sustainability aspects provides you with knowledge on where to focus your efforts and informs the objectives you may set for your organization. Questions - Internal perspectiveFor commitments to customers, are these on track or are contracts atrisk?For your own commitments, how are you performing and are you livingup to those promises?For what you report for legal reasons, have you any targets and are youmeeting them?What sustainability performance data are you collecting today? Does thiscover a broad range of sustainability aspects and the full lifecycle of yourproducts/services? Have you benchmarked your sustainability performance (and goals)against your competitors?Questions - External perspectiveHow do your customers, suppliers, insurers and other externalstakeholders see your purpose and scope?What do your stakeholders see as your sustainability impacts and risks? Are you measuring these and, if so, how well are you performing?What do the media say about you and your actions?Risk management & sustainability report 2023Sustainability performance should consider both how people and the planet areaffecting you, and how you are affecting people and the planet. 16

5.2.4 Looking into the futureWhat actions you take and their outcomes will all be in the future, and successmeasured in that future. It is, therefore, essential to consider what things could be like inthe future in setting goals, objectives and strategies. This can involve answeringquestions like “where are our stakeholders/the society in which we operate/the worldgoing?”, “what technologies will be available?” and “what will be their priorities?”.Past decisions made as a result of previous thoughts, market pressures, objectives andgoals have resulted in your company’s current position. However, taking the same viewand actions might not be sufficient to achieve future sustainability goals. A critical lookat current practices, be it business model or management model, needs to take place.For example, the UN sustainable development goals have set a direction and desiredfuture; how well we are currently doing against them can be seen in their annualreports. We hear almost daily about climate change and that we are likely to miss theParis agreement goal of limiting the rise in the planet’s temperature to 1.5C, aboutdroughts or severe weather, about children in poverty, etc. The general message is thatmore is needed, and this is something to take onboard as your set your direction.This can mean, for example, setting intermediary objectives as the technology neededto achieve the final vision is not initially available. An example would be the aircraftindustry where hydrogen powered aircraft are on the drawing board, but technology isnot advanced sufficiently for this to be achieved short term. An intermediary objectiveof synthetic fuel powered aircraft is, therefore, set and reported against.More generally, innovation is accelerating, weare seeing unprecedented change faster than atany other period in history.This perpetualinnovation and change cycle providestremendous opportunities for organizations.However they may also pose threats. Learning from the past, we know innovation andchange involves uncertainty and risk, and canhave unintended consequences; potentiallysustainability related. These may not be knownor recognised when innovating and makingchanges, therefore we should regularly reviewthe context.You need to have sound data about both yourexternal or the internal context to help you setthe right and appropriate sustainability goalsand objectives for your organization. For manyareas of sustainability, knowledge is continuallydeveloping and building. ·Asbestos was used to overcomethe real risk of fire spread inbuildings.Cars were hailed originally as anenvironmental benefit. We forgetthat large cities such as London andNew York were inundated withhorse manure to such an extent thenumber of carts required to takethe manure off the streetsexceeded the number of carriagesused for transport.Case Study: Asbestos & PetroleumFor asbestos & petroleum there was aconcerted effort by the industries tocover up and discredit negativescientific evidence of thehealth/environmental risks of theproducts.It should be remembered both weredeveloped to overcome previous issuesand risks:Risk management & sustainability report 202317

Risk management & sustainability report 2023Given this dynamic reality, it is good practice to seek out the best scientific knowledgefor sustainability aspects of relevance to your organization and its activities every timeyou undertake an exercise to understand your context and the ensuing organizationalpurpose, goals and objectives.There are aspects of sustainability that require a longer-term view than organizationshave typically taken when setting their strategy. If your strategy outlook is only for athree-to-five-year time horizon, then the consequences related to some importantglobal sustainability issues (e.g., climate change) are unlikely to fully manifest in thisperiod to outcomes that threaten or create opportunities for your organization.Consequently, it is possible that such sustainability related risks will not make it ontoyour agenda and will not be addressed in your action plans. With a longer-term view often to fifty years, these sustainability issues and risks have the potential to besignificant and the need to act is clearer. It is here that the use of foresight tools and targeted working groups can be used. Youshould take a longer-term view and consider the impacts of innovation, sustainability,and other changes. When looking to understand your context, you need to also thinkabout the future (not just today). The better you understand the world around you (locally and globally, today and in an uncertain future) the better you can define your goals and objectives. This understanding gives you the opportunity to take advantage of innovation and context changes, while also taking steps to build sustainability and resilience in your organization. Being blind to such changes could lead to your products and services becoming obsolete, your key strengths no longer being strengths, value being destroyed and the loss of competitiveness amongst much else. You will be standing still in a world that is moving forward and changing around you.Map of the Netherlands showing flood prone zones (blue shadings) and features of the water management system (adapted from PBL [58]). N.A.P. is the Amsterdam Ordnance Level which is the reference plane for sea level height in the Netherlands.Case study – What if no action?Consider if your organization’s supply chain went through Rotterdam and you have many customers in the Netherlands. In the short term, the risk of floods thatinterrupt supply or impact on your customers may be small, however taking a longer-term view highlights risks. Planning to manage these needs to start in the shorter term. Source https://doi.org/10.1088/1748-9326/ab666c. Adaptation to uncertain sea-level rise; how uncertainty in Antarctic mass-loss impacts the coastal adaptation strategy of the Netherlands 18

Remember, when introducing innovation and chance, to think about their potential(unintended) sustainability risks and impacts. As already stated, the uncertainties of thefuture and the dynamic nature of innovation and change, requires that your contextand sustainability footprint should be continuously assessed and reviewed, and yoursustainability promises and ambitions updated.Risk management & sustainability report 20235.2.4 GovernanceRelated to the scope, purpose and strategy, is the need for effective oversight whichyour organization, and its leadership team, have defined and are fulfilling. Checks and balances need to be in place, and your boards, governors and advisors needto play their role in maintaining the organization’s momentum and direction to achieveits goals. Becoming complacent, setting low standards and targets, etc., will all lead to afailure to achieve your goals, or to achieve them too late.It is important to recognize that there is significant work underway around the world todevelop and extend Governance and Regulations frameworks relating to fields ofSustainability, ESG, and Risk Management. This is necessary in order ensure all stakeholders, including shareholders and others withfinancial interest in your operations, have access to information relevant to their decisionmaking. Access to capital and even the ability to trade in certain markets may be limited ifyou cannot demonstrate that you are meeting your obligations and have viable sustainabilityand risk management capabilities in place. 5.3 Making your sustainability promises Promises to deliver new/improved products and/or services which help yourcustomers/stakeholders manage their sustainability risks and impacts moreeffectively. These business opportunities can then be built into your objectives andstrategy. Promises to deliver your products and/or services with better sustainabilityoutcomes from your operations/activities, your supply chain, and your products.From a sustainability, risk and impact point of view, there are two types of promises tomake. These should be based on a sound understanding of your organization and itssupply chain’s context (i.e., the external and internal environments of your organization’soperations and activities) and are:While for some aspects of sustainability it may be straight forward to make immediatecommitments, e.g., a modern slavery zero-tolerance commitment, for others a transitionor journey is needed, and it is essential to take a long-term view.This can be illustrated by the Paris Agreement’s global goals for climate change; “… tolimit global warming to well below 2, preferably to 1.5 degrees Celsius, compared topre-industrial levels” and to achieve this for “countries [to] aim to reach global peakingof greenhouse gas emissions as soon as possible to achieve a climate neutral world bymid-century” You can set a number of shorter-term sustainability objectives spread over time which lead to the achievement of your long-term goals. 19

Risk management & sustainability report 2023Reality Checkhelp your customers be more sustainable?operate more sustainably?make your supply chain and products/services more sustainable?Is sustainability embedded in your strategic goals, and objectives? What sustainability benefits are you promising to deliver?Do your goals and objectives include ones to:Are you in a position whereby you could get a competitive advantage if youhad more progressive sustainability targets? Are there potential business opportunities of setting higher targets?Are you committing to measure and demonstrate how well you are deliveringto your sustainability promises?Are your actions sufficient and do they include stretched targets?If you can achieve targets sooner and better, do you modify your strategy?Does your organization have a system to scan and analyze scientificknowledge and assess best practice on an ongoing basis?Do your systems, processes and culture mean sustainability impacts and risksare ethically analyzed (or do you run the risk people will choose to cover upnegative research)?It's crucial for other objectives to be clearand aligned with your overall goals. It reallyhelps to make sure they are SMART too!This should be matched with a culture where you look to be efficient and effective, andthere is value in striving to achieve some objectives faster than initially anticipated.Given the breadth of sustainability, the ability and practicality of having goals andobjectives for all sustainability aspects is questionable, specifically as a balance needs tobe struck between all aspects of sustainability relative to your organization. Taking arisk-based approach to determining where to focus and hence where to set yourorganization’s sustainability goals and objectives is appropriate. This is discussed furtherin subsequent sections of this document. The need for sound data and scientific knowledge is also important for setting out yourdirection. For one area of sustainability, namely climate change, a partnership betweenCDP, UN Global Compact, WRI, and WWF has set-up “The Science Based TargetsInitiative”. The initiative supports organizations to set emissions reduction targetsrequired to limit global warming well-below 2°C above pre-industrial levels and pursueefforts to limit warming to 1.5°C. The initiative’s resources may be of assistance to you.20

Risk management & sustainability report 2023The plans should include tasks addressing identified risks (including ones withsustainability consequences) associated with the future operating model, along withmeans to manage these risks on an ongoing basis, to ensure future successsustainably, andThe risks associated with delivering the plans should be identified along with meansto manage them, to ensure successful delivery, and Opportunities should be captured and nurtured through R&D funding, spinoffmanagement and potential partnerships with similar minded organizations. Based on your sustainability goals and objectives, you can define your vision for thefuture (i.e., the future operating model which delivers the sustainability and otherbenefits you are targeting for you and your stakeholders). From this you can thendevelop the change/transformation plans. As with any plans or project:Your understanding of your context provides you with the knowledge and awareness toundertake these risk assessments. Your ability to deliver successfully and sustainably inthe future will be influenced by many factors including change externally, yourorganization’s internal strengths and vulnerabilities, your people knowledge, skills andcapabilities, your resources, etc. When risk assessing your future operating model so itwill deliver successfully and sustainably, your assessment should be from the standpointof "where I need to be or will be", rather than "where I am or am coming from".Good risk assessment enables sustainability opportunities and threats to be captured.They should lead to actions to ensure the sustainability of front-line operations.Following appropriate thought processes helps you identify opportunities and threatsthat are material to your business, and develop actions in response to them.As the world is continuously changing and our knowledge of it and sustainability isevolving, a key message is that the process you follow to set your direction should beregularly revisited and not be a one-off activity. Through such an approach, organizational sustainability can be achieved and maintainedas the organization will continuously adapt to suit changing contexts and stakeholderneeds and expectations. By using a Risk Management approach and integrating appropriate monitoring and control, you are building not only your ability to make progress against your sustainability goals, but also generating evidence of how you are meeting your commitments that can help you demonstrate compliance and good governance.To have a positive impact, you must deliver on your promises and commitments. The section “Sustainability risks and impacts decision making” discusses further approaches to the challenges of balancing sustainability aspects with very different impact and risks to aid decision making for managing sustainability risks.21

The company committed $7.3 billion to pay for fines days after the scandal. At the time of writing the running costs of the scandal were estimated at over $35 billion.The share price fell by $100 per share when the scandal was revealed. The share price took nearly six years to recover to its pre scandal levelCase study: Automotive | VolkswagenIn 2015 Volkswagen admitted they had installed emission testing defeat devices to their cars. The costs to the company were eye watering:The previous year the Volkswagen 2014 annual report said the following regarding its sustainability performance.Risk management & sustainability report 20235.4 A risk to manage; "not living up to your sustainability promises" While there is a risk in not having sustainability goals and objectives aligned with the expectations of your stakeholders, there is also the risk of not living up to the sustainability promises you have made. Two case studies illustrate this point; Volkswagen and Boohoo. "In 2014, Volkswagen again ranked very highly in the most important international rankings and corresponding indices, obtaining a leading position in its sector. In RobecoSAM AG’s sustainability ranking, the Group was listed in the Dow Jones Sustainability Index (DJSI) World and the DJSI Europe again in 2014. RobecoSAM AG examines performance in the field of economic, environmental and social sustainability. Volkswagen was named the best in its industry in the categories of brand management, innovation management, climate strategy and compliance, among others.""The Carbon Disclosure Project (CDP) awarded 99 out of a possible 100 points for disclosure and an A-rating for performance in acknowledgement of the Volkswagen Group’s environmental activities. On the basis of these outstanding results, we were again included in both the CDP Global 500 Climate Performance Leadership Index and the CDP Global 500 Climate Disclosure Leadership Index."Case study: Fashion | boohooIn July2020, a Sunday Times report revealed boohoo's UK suppliers were paying £3.50 per hour at atime the UK minimum wage was £8.72 per hour. Just before the scandal hit, Boohoo share price was£408. The share price dropped 63% immediately. Although the share price recovered somewhat atthe time of writing, the Boohoo share price was £88.The Boohoo annual report in 2019 said the following about Modern Slavery."boohoo has a zero-tolerance approach to modern slavery. Our Modern Slavery Statement can be found on our website at http://www.boohooplc.com/boohoo- social-responsibility/modern- slavery.aspx. In addition we have aligned ourselves with Hope for Justice/SlaveryFreeAlliance charity foundation who will undertake work and investigation on our behalf to ensure there is no modern slavery in our supply chain and to support the work by ourselves and third party auditors to ensure our code of conduct is being adhered to."In conclusion, on setting your direction you need to make promises that align to theexpectations of your stakeholders and which you can keep, and then you need tokeep them. If you realise that your plans are not delivering as you intended,acknowledge this openly. In such a situation, you should review and change yourpromises and plans based on the learning gained. At times, you may also need toadapt your promises in light of a changing context or changing stakeholder needsand expectations.22

Risk management & sustainability report 20236. Determine focus to deliver greatest sustainability value6.1 The challengeDeliver your purpose and promises, including your sustainability goals.Address and manage associated sustainability risks and issues related to yourassets and activities including the decisions and changes you are implementing.Sustainability risks are rarely unique and independent of other risks within anorganization. More than ever, they are associated with and embedded within yourassets and activities including the decisions and changes you are implementing. Forexample, decisions and actions to buy spare parts, source new materials, increaseproduction, hire new people, enter new markets, undertake new research and changean existing business model will undoubtedly have sustainability risks and impacts.In many cases they are being managed, but not always in an explicit and systematicway, and it can be difficult to demonstrate exactly what an organization is doing tounderstand and manage the sustainability risk and impacts associated with theiroperations. The sustainability scope is not always identified, evaluated andincorporated as a fundamental part of strategy and the decision-making process. Thisis a reason sustainability risk and impacts may not be explicitly and systematicallymanaged, however they may be opportunistically managed (partially) via otherdecision considerations and actions. Your planned action should seek to:For different aspects of sustainability to be managed and set on the same level playing field as other priorities in decision making, you need a means to compare alternative actions and their full range of outcomes, risk and impacts. Historical models typically look at revenue impact or EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) and cost result, but do not explicitly capture the intangible value of positive sustainable outcomes. Such things as sustainability, resilience and image are more commonly measured qualitatively at the organizational level and may not be captured systematically or conclusively in, for example, the financial performance, share price or normal value programs. Such an approach is called ‘systems thinking’. Reality CheckDo your organization’s plans seek to deliver your organization’s purpose andpromises?Is sustainability included as an inherent and fundamental part of yourorganization’s plans and are they on a par with other considerations beingmade?23

Risk management & sustainability report 2023Traditional discounted cash flow (DCF), value at risk (VaR) or enterprise value (EV)models tend to undervalue outcomes that are delivered in the medium/long term. Suchmodels commonly assume a steady state or steady change future. The reality ofvolatility today and the need to meet long term goals with a benefit to a wider groupof stakeholders, some potentially located away from your operations, requires newways to look at (future) value, beyond simply financial return. While making the change to an organization’s purpose can help drive more timelyactions, financial and economic models also need to be adjusted to place greater valueon sustainable long-term outcomes with their assumptions documented transparently.Reality CheckDoes your organization put an economic value on sustainability outcomes, riskand impacts when making decisions or does it use cost only? Is this done in a manner that allows sustainability outcomes, risk and impactsto be compared with other outcomes, risk and issues?Are sustainability outcomes, risk and impacts given relevant weighting againstother areas including financial?Have you prepared narratives that support decisions to fund such initiatives,and have you implemented a performance measurement system that tracksand captures the true value of such activities?This document has already discussed the importance of identifying and capturing areas of sustainability relevant to the operations of your organization, then making sustainability part of your purpose and defining your sustainability promises. This section builds on this, and provides guidance on how you can go about addressing sustainability as you develop your plans and deliver them.6.2 PlanningWhether setting your promises or looking at an operation or a project, an initial activityis to determine where to focus. Remember to take the broad view and define a clearand focused scope (whether that be the organization setting it’s promises, or for adepartment developing its annual plans, or for a change project to improveperformance and deliver a promise, or any other scope and reason). Some useful questions to ask when establish your scope include: “what is it you are orwill be doing and supplying”, “who are or will be your customers/stakeholders, andwhat are their expectations”, “who are or will you be dependent on”, “what is or will beyour supply chain”, “who and what is or will be potentially impacted by your activitiesand their deliverables”. To this you may add other scoping questions. The objective isto identify all the relevant components in your scope, including dependencies andstakeholders.6.2.1 Determining where to focus your actions and efforts.24

When defining the scope it is also useful to consider which of the 17 UN sustainabilityareas will be impacted and/or which can you address take steps towards improvedsustainability? Initial success stories might be achieved in the area of water recycling ordust emissions. It could revolve around community service and supporting socialprograms in local communities, etc.Useful tools that can help to define and describe your scope include the SIPOC(Suppliers, Inputs, Processes, Outputs, Customers) model, Integrated Reporting’s (IR’s)Six Capitals model, process mapping, the DMAIC (Define, Measure, Analyse, ImproveControl) methodology amongst others.You should then analyse your model to identify its sustainability risks and impacts. Thiscan involve materiality assessments and risk assessments to identify both threats andopportunities. Below we have provided more detail to help with such assessments.Integrated Reportings' (now part of IFRS) six capitals have been mapped to the UNSDGs in; “The Sustainable Development Goals, integrated thinking and the integratedreport” (Carol A. Adams 2017).this may help in determining where your scopepotentially impacts on sustainability.Main steps in a materiality consultation1. Identify all stakeholders: Review who areyour supplier and customer groups, andothers potentially impacted by youroperations, including by your inputs andoutputs (the broad view). Identify contactsthat can provide a meaningful perspectiveon your operations and sustainabilityimpacts/risks.2. Determine which of your stakeholdersyou can consult: Your overall objective is toelicit their unique perspective, to shapeyour sustainability plans.3. Prioritize what you need to feedback on:Think about the assessment's objective tounderstand the sustainability impact onyour organization. Your aim is for yourbusiness to thrive whilst doing good, or atleast, to do no harm. 4. Develop your materiality survey: Keepthe survey formal but conversational. Elicitviews and insights to gain stakeholdersperceptions of your organization’ssustainable practices and performance,and to learn their expectations. 5. Use the information gained to informyour organizations plans.Risk management & sustainability report 2023Materiality Assessment This covers the analysis of where yourorganization’s activities impact onsustainability as described in section“Setting your direction”. Such an analysis is an inside-out appraisal,understand the perspectives of your organization. The priorities and opinionsfrom an outside-in focus can be differentand important when establishing yourpriorities, plans and the business case forthem. You should develop a list of actions toaddress areas where (disruptive) actioncan improve sustainable performanceand/or change to more sustainablemethods while achieving the same/desiredbusiness outcome. 25

Risk management & sustainability report 2023Risk assessmentMany sustainability risks can be seen as threats for some stakeholders and opportunitiesfor others. Additionally they may switch from threats to opportunities, or opportunity tothreat over time. Both opportunities and threats should be considered. For clarity theseare discussed separately below, but can be undertaken together:This perspective is the typical one ofidentifying the potential risks withnegative impact on your organization. When evaluating the risks, you shouldconsider a full range of impacts onpeople, the environment and yourorganization, including image andreputation, physical assets, clean up,legal costs, etc. Risk threat assessment (preserve value) This is, perhaps, an assessment manymiss or undertake poorly. Sustainabilityopportunities often become visible overthe longer term and, with theirintangible nature, can be difficult toquantify. Their identification requires a gooddefinition of your current and futurecontext (see “Setting your direction”). Time should be allotted for foresightworkshops. If difficult to quantify, aqualitative description of benefits canbe made.Risk opportunity assessment (realise value) Reality CheckAre you analysing where your broader scoping impacts on your sustainability? Are you listening to the views of your stakeholders? Do you know theirsustainability expectations for your organization?Are you identifying your sustainability threat risks and developing means tomanage them?Are you identifying areas where sustainability presents opportunities and anyrisks that be associated with these. Are you developing options to exploit these opportunities?26

An additional consideration with some sustainability risks is the compounding nature oftheir effects over time. While impacts may seem a long way off and the current effectslimited, the priority and urgency of the situation needs to consider the long-termimpacts and the potential benefits of addressing these sooner rather than later. As anexample, consider decisions around cutting emissions and the risk of emissions ofclimate change gases, and note that the end goal is not an “output”, namely reducedcarbon emissions, it is the “outcome” of keeping the post‑industrial global temperaturerise below 1.5ºC. To keep below this target we must not only cut emissions immediately,but we must also remove carbon that has already been generated, and we must do thissustainably across multiple playing fields.The compound interest effect of carbon dioxide on temperature rise is such that forevery tonne released today, it will require 6 tonnes to be removed from the atmospherein 2049. Hence an improvement today has a six-fold benefit it 2049. Possibly one of themost difficult areas to predict and include in prioritising is such compound factors (alongwith the strength of resistance that may be encountered in an organization where theshort term is naturally prioritised). This links to the need for new ways to look at (future)value, beyond simply financial return, highlighted in Section 5.1. In many organizations a Business Case may be needed to approve plans, in smallerorganizations the approval may be more organic. However you approach making yourdecisions, it is good to articulate the drivers for proposed actions and changes. Plan anarrative that sets out alternative options/scenarios for decision makers that includes a‘do nothing’ scenario as a comparator, that meets the expectations of stakeholders,including owners/shareholders. For each option, set out the associated consequencesfor the business and its' stakeholders. Where there are benefits/negatives for stakeholders, seek to indicate how these mayflow on to subsequent impacts/risks for your organization to provide a strategiccontext. Risk management & sustainability report 2023Decision making can be aided by valuing all risks;sustainability risks and other risks - both threatsand opportunities - appropriately and in a way,they can be compared. This can be a challengegiven their diversity and, due to their nature (see“Nature and Characteristics of SustainabilityRisk”), much of the sustainability value beingdelivered is intangible. Balancing such risk isdiscussed in the section “Sustainability risks andimpacts decision making” (Section 6).Clearly, sustainability risk and other risks are not the only consideration in making decisions. There are other factors to consider as for all decisions. “Nature and Characteristics of Sustainability Risk” (Section 3) raises some of these in relation to sustainability, such as innovation and the speed of uptake of new technologies. 27

Risk management & sustainability report 2023Some other factors which may need to be considered are:The level of vulnerability/risk for your organization posed by failure to act; the ‘donothing’ scenario.The speed that the environment and respective context are changing.The time needed to implement actions before potential alternative solutions arediscovered or market patience is exhausted. Current political and societal priorities and perceptions.Other information that may inform or verify your organizations plans.As discussed in “Nature and Characteristics of Sustainability Risk” (Section 3), sustainability improvement may require two work streams running in parallel. The first focusing on a short-term solution and second researching and developing a long-term (final?) solution. Reality ChecksHas “do nothing” been recognized as a positive decision and itsconsequences and risk defined? Have you considered both incremental change and step disruptive changeoptions to improve sustainability?When making decisions on your plans:6.2.2 Implementation of the planEach goal and their associated actions identified will form part of your overallprogramme of activities. They can be managed following your normal businessprocesses. You should regularly review your plans, and evolve/modify them to stay ontrack to deliver your sustainability promises. With sustainability being an area with fast changing priorities and expectationsinfluenced by media and politics, and one where there is significant learning andinnovation, picking up on changes in expectations and knowledge is vital. From these,you can identify what is not working, where goals should be adjusted, etc, and thenmake appropriate changes to plans to be sure you are delivering real and positivesustainability impact.Assess how well you are delivering, based on measuring the success andimpacts of your actionsMonitor the external environment.Your review should:Reality CheckAre you regularly reviewing and evolving your plans based on yoursustainability learning, new technologies, changing stakeholder priorities andexpectations?28

Risk management & sustainability report 20237. Sustainability risks and impacts decision making7.1 Illustrations of decision-making challengeSteel production requires iron ore, scrap metal, coal and coke, lime and significantenergy in the form of electricity, methane and other gases and metallic elements likechromium, manganese, etc. This makes the overall process complex and there willalways be areas where full sustainability is difficult to achieve in the volumes neededfor global significance.Steel is obviously a key material to our modern way of life and governments areoften keen to keep some production in the country.To bring a fully integrated blast furnace up to current best practice could costaround £1.5 billion, and a plant will need constant upgrades as technologyadvances. This could make make some foreign competition cheaper, if the othereffects are not appropriately considered. When considering sustainability risks there will be pros and cons to every decision youmake, and in most cases there will be no way of simultaneously satisfying all sustainabledevelopment goals. To illustrate this point let us consider a hypothetical steel plant. Tofully appreciate the dilemma the following points are salient:Blast furnace utilising iron ore, coke, limestone etcDirect reduced iron (DRI) utilising methane or hydrogen to reduce iron oxide directlyto pure ironElectric arc furnace or induction furnace using recycled scrap metalsBlast furnace – iron ore and coal need to be sourced, which means mining, wateruse, waste material storage and heavy machinery. Molten materials require largeamount of energy in the form of heat, gas, electricity which result in the naturalreduction of iron oxide to cast iron and the formation of carbon dioxide. Any furtherchange in form of the materials requires large amounts of energy requiring powerplants, distribution networks and transformers. All need copper, which is minedfrom land, meaning removal of that land's forests, agriculture and building space.DRI is a process that removes the need for coal, but the alternative material isinherently hazardous. The process requires large amounts of methane or hydrogenwhich when burned generates significant exhaust gases. DRI also requires very pureiron ore which is only available in certain countries and potentially not in significantvolumes to cover future demands.Case Study: Steel – Decision making optionsThere are multiple ways to produce steel:With a growing population, there is a continuous and growing need for metals, and inparticular steel as being a strong but malleable product that, together with modern 3Dprinting technology, it can be used to produce complicated but strong components formany practical uses. These range from steel structures for building, mobilityinfrastructure use such as rail tracks and vehicles, and simple everyday commodityproducts like knives and forks.Each production path has its own complex issues:29

Studies show it could be, cheaper, more cost effective and environmentally morefriendly, to build a state-of-the-art plant in another country (depending on theproduction route chosen).Decommissioning a plant and cleaning the site to residential levels holds significantcosts and is in a continuous state of flux as technology changes. Duration of clean-up is measured in years, and depending on the site age might never be completeddue to underlying strata and underground water systems. However, clean uptechnology is evolving and can provide up to 10% of a typical steels plantemployment levels provide by the plant.Large steel plants can have upwards of 3000 employees making them a largeemployer and tax generator. In addition, studies estimate 60% of a region’spopulation may depend on the plant for their livelihoods as, for example, serviceproviders and other supporting services to the community.Electric arc furnaces are interesting as only scrape material is used, but they require largeamounts of electricity and graphite for electrode production. A very stable electrical supplyis needed and in some countries during summer periods, the use of this type of productioncan impact local communities. With increased population and a trend towards greenelectricity there are potentially not enough power stations of significant size to generatelocal needs without black outs or brown outs being possible. This is already the case inJohannesburg, for example, during certain periods of the year. As material is recycled andless new material is generated, a potential bottleneck may be reached as the price of thistype of steel changes. Also, the risk of radiated steel increases with recycled materialscoming from military sources. There is already significant risk from munitions being foundin scrap and care must be taken to ensure there are no hollow spaces in the scrape wherewater can be accumulated as steam explosions can result.One spin off from any of these processes is the conversion of carbon dioxide to ethanol usingbiological conversion processes called steelanol. This is a viable industrial process, but couldimpact on agriculturally based ethanol product meaning a direct competition for some farmerslivelihoods.Risk management & sustainability report 2023A decision on the a steel plants is complicatedand fraught with numerous potential pitfalls.Whichever decision you come to could lead toreputational damage for your organization. The key issues to come back to are yourorganization’s values as discussed in sections 3.If you value environmental effects on the planet above all else, you might decide tobuild the new facility in another country and close your existing plant down as quicklyas possible. However, if you value providing jobs and the absence of poverty in thelocal area as your highest priority, then you might decide to make minimal legallyrequired environmental improvements and keep the site open for as long astechnically possible.30

Risk management & sustainability report 2023Reality CheckWhat will other parties think when they hear about the goals set by yourorganization?With a clearly defined end point, have the milestones in achieving those goalsbeen set and communicated to all parties? As other events can occur before achieving both the end point and themilestones, how confident are you can flex your plans to deliver your goalswithin your timeline?What other industries could be attracted to the area to replace the jobs thatmight be lost?Talk to local and national authorities around what grants or contracts might beavailable to offset the required environmental improvement investments.Within what time frame do you believe a game changing technology may comealong that will make steel production truly sustainable?There are, of course, a myriad of other decisions you could make between the twoextremes outlined. For instance, you could look at some of the following:This hypothetical study illustrates how complicated decisions can be. It is importantthat for any specific decisions you map all the risks and opportunities. You can do this against each one of the 17 UN sustainable development goals.There are models that you can use to put a value on different aspects of the goals,however in most cases it will come down to a qualitative comparison of those risksand opportunities viewed through the lens of your organization’s core values.Gone through a thorough decision-making process.Mapped all risks and opportunities to the best of your ability.Grounded your decisions in the organization’s values.You will need a communication plan to explain how you made your decision, and beprepared to go into the details of your considerations. There is of course no absolute objective way of making these decisions and anyonewho has an agenda could make life difficult for you when justifying your decisions. You will be able to defend your decision to all relevant stakeholders if you have:Comparison between alternative solutions typically is framed in an economicalsimulation and tracked using performance indicators. Financial Markets will requirethat these are transparent and reported regularly. It is clear that, as sustainabilityactions are commonly intangible in their nature, then the use of typical reportingformats might be inadequate and new forms of reporting should be considered.Consequently, you may wish to use different scenarios based on the data gatheredto further illustrate the impact of different decisions.31

Risk management & sustainability report 20237.2 Build sustainability aspects into prioritisations and decision-making toolsOrganizations commonly have a range of prioritisation and decision-making tools. Thesewill assist in the assessment of the value of different options and will define who canmake and sign-off on different decisions. Consideration of sustainability risks and issuescan be built into these. This should be done prior to making decisions to avoid bias.Common tools to assist in decisions on risk can be qualitative or quantitative. The mostcommon risk tool to aid decision making is a qualitative tool; risk matrices. Ifsustainability risks and impacts of concern can be quantified, then quantitative tools canbe used such, as an EBITA bridge.These two examples are discussed in the next sub-sections.7.2.1 Risk matrixRisk matrices are used to assess the riskassociated with assets and activities ofan organization. They are commonlyset-up to help assess and evaluate riskswhich have an impact on people, theenvironment, assets/finances andreputation. Based on the assessed risk level,decisions on selecting options andaccepting their risk are made andapproved by relevant personnel in theorganization in line with the amount ofrisk the organization is willing to take.The higher the risk of an option, thehigher the level in the organization atwhich that risk should be accepted. This is just the same approach as organizations use to, say, sign off on expenditure ofdifferent values.Knowing the sustainability aspects of relevance to your organization and the decisionbeing made, allows you to define consequence types for each sustainability aspect, asfor your existing consequence categories. Note that the matrix should be set-up priorto making your assessment and decisions.It requires some expertise to design a good matrix and it can be difficult to define common scales thatapply across a range of circumstances relevant to an organization. As a qualitative tool, their use is very subjective and different people often allocate very differentratings to the same risk. Facilitation is important to build consensus. and avoid misunderstanding. Risks cannot be directly aggregated. It is difficult to combine or compare the level of risk for different categories of consequences. Each rating will depend on the way a risk is described and the level of detail given. Note on Risk MatricesISO has produced a Standard for Risk Assessment Techniques (ISO 31010) that provides comprehensiveguidance on a wide variety of methodologies. This is a resource that is strongly recommended to help inselecting the most appropriate approach for their assessments.32

Risk management & sustainability report 20237.2.2 Enterprise ValueAn EBITDA bridge is a traditional financial reportingtool.It can be extended to include intangible elements toreconstitute the full enterprise value or stakeholdervalue of the organization. A so-called managerialbridge. Actions such as the need for environmentalclean-up, R&D in innovative solutions, sustainableelements of logistical routes or procurement costsneed to be isolated so that stakeholders are aware ofpotential cost implications versus sustainable benefits. The acronym EBITDA stands forEarnings Before Interest, Taxes,Depreciation, and Amortization.An EBITDA bridge is an easy wayfor investors or users of thefinancial statements tounderstand what financial lineitems drove year over yearchanges in EBITDA. Identifying those projects that are actually destroying value as they are built onexisting processes that are not stable and sustainable, Separating out those actions which are new and innovative from those that areexisting and needed to maintain the stability and sustainability of the organization.It is important to transparently report within your organization that certain suppliers aremore expensive due to the sustainable nature of their products, and to avoid pressureof cost reduction - or at least to make your decision makers aware of the price ofsustainability.Two additional steps are used to prioritise actions that include sustainability elements.Firstly, we extract those projects which have already been budgeted and are beingexecuted. Secondly, we convert the existing financial view into one by functions so thatownership is clear. Then the evaluated benefits or lack thereof are clear. This process generates the two elements that are key to decision making andsustainability:33

Projects have traditionally only captured 50% of their full business case benefits due toexisting issues within the organization. For example, the window of opportunity hasgone or is less than previously expected; or no evaluation has been made of costs andmodifications falling outside of the project scope but impact on the organization as awhole.Using simple simulations, it is possible to show which actions, or series of actionsimproves the overall bottom and top line of the organization, revealing the entireimpact decisions have on the organization rather than isolated elements. By including the sustainability actions in scope, and using the enterprise value as thekey measurement, we can see their full value and budget accordingly.Assumptions used initially in the process will be strengthened and modified throughexperience so that the uniqueness of each organization can be captured. Risk management & sustainability report 2023Reality CheckDo we need to change how we report and manage the overall business so thatwe incorporate these intangible sustainability assets transparently andcorrectly?Do we need to consider using other metrics to report organizational value and ifyes who do we need to collaborate with to ensure change remains sustainable?7.3 Timelines Change your decision making to keep ahead. You can no longer rely on only a lookinto the distant past, but must use foresight within your management process. Report on objectives, targets, and general state of the actuarial marketplace morefrequently. Reporting needs to be in line with the speed of change. In the last fewyears, between COP 25 and COP 26, we have seen such dramatic change that areporting timeline of 5 years is too long. The current business environment and public awareness of sustainability is verydynamic and uncertain. Just think how your organization’s and the public’s knowledgeon climate change, to name one aspect of sustainability, have changed over the last fewyears. Science and technology are highlighting new solutions, identifying unforeseenchallenges and presenting a very complex future for decision makers. To keep on top of and to do all we can to address changes to sustainability success youneed to:1.2.With an increasing rate of change, how you made decisions in the past might mean youare not responsive enough to evolve with and take advantage of changes taking place,especially in the sustainability area. Being behind the curve means your organization risks falling into the trap of having to“react” to keep up, and having to spend more resources. Your targets may appearredundant, out of touch or no longer valid and team motivation can suffer. To stay ahead, or at least track the changes, requires your leaders to stay up to date ontrends and changes. 34

They need to be provided with sufficient data and information in a timely manner todraw conclusions and make regular decisions to evolve your organization’s direction oftravel. Some sectors and organization will succeed relatively easily, but others face tremendouschallenges. Investments in new technology, R&D and innovation may be key to meetingthese challenges, informing your path and strategic vision.This means reviewing progress and comparing with actual requirements on a muchfaster timeline than has been common in the past. As already stated, it will be important to have transparent communications on yourpromises, what you are doing to deliver them and both your successes and failures.Stakeholders will not only build their trust in you to do what is important but willrecognise your ability to respond to change.Reality CheckWhen establishing projects it is essential that they are measured andmonitored. Have you started to define key performance indicators that areactually capable of measuring sustainability risk and impact progress correctly?Have the management reports and processes been updated so that thoseparties that are responsible for those performance indicators are reporting theresults? Who will be responsible for ensuring the results are reliable and sustainable?If a change in business model is required and investments or research conductedto a higher level than in previous years, then there will impact to economic andfinancial performance indicators. How will markets and investors be informed ofthe change?For a sustainable behaviour change to take place, do we need to revisit thecurrent HR policies and training initiatives and encourage managers toparticipate in additional coaching incentives?7.4 Value indicatorsActioning decisions leads to the need to monitor your progress in delivering yourpromises. Typically, organizations use performance indicators, but as some of theelements associated with sustainability are of long duration, take time to address andoffer intangible value, thought needs to be given on how to measure and reportaccurately. Your route map to your ultimate sustainability goal(s) could require intermediatemilestones which are different to your targeted solution. Reporting should, therefore,be set-up to transparently report and monitor for the transition path you have chosenand look for value that may not be initially foreseen.Reporting is discussed further in Section 7; “Sustainability communication:accountability, trust and reputation”.Risk management & sustainability report 202335

Risk management & sustainability report 2023Jet fuel.Alternative fuel.Hydrogen.Electricity.Spinoffs of technology as research continues.Innovation in alternatives that are more efficient and effective.Longer staff retention as the work is revolutionary and exciting.Investors see the potential for change and growth in comparison to other peer groups whoonly seek to finetune existing technology.Case study: Measuring value creationImagine you are operating an aircraft manufacturing company. It is common knowledge that thecurrent engine type uses jet fuel and generates large quantities of environmental contaminantssuch as carbon dioxide, noise, particulates, etc.Let us assume you have an ultimate goal of manufacturing electric aeroplanes that aresufficiently sized to carry large numbers of passengers. You are also aware of current researchon less polluting alternative fuel as well as for engines that can operate on hydrogen. You couldhave each of the following defined as milestones in the journey to the final solution:Remember that each of the targets is flexible and, as new technology appears, they can allchange.As research takes place for each option in parallel on differing timelines, it will require differentmetrics. Reporting progress and performance is a challenge as much of the technology currentlyis relatively new or does not yet exist. However, value can be created in many ways which can also be part of the value measurementand any reporting, for example:36

Reporting provides a potential opportunity/up-side, where value is created throughdemonstrating leadership and positive sustainability performance. However it alsoposes a potential threat/down‑side, where a lack of transparency, unintentional orintentional false reporting (including omissions or greenwashing), and inability toevidence delivery of promises made, can destroy value.There are clearly benefits to communicating and reporting on your organization’ssustainability goals, activities and performance. You can demonstrate your commitmentto what you and your stakeholders value. This can be through sharing yoursustainability goals, showing progress in what you are doing and communicating thesuccess and benefits of what you deliver. Advantages include attracting prospectiveemployees especially from younger generations who increasingly seek ethical,transparent and environmentally conscious organizations, increased staff moral,increased customer retention and sales, better financing and attracting investors. There are obligations and mechanisms organizations must consider whencommunicating and reporting their sustainability goals, actions and outcomes. Thisapplies to both self-declared sustainability goals as well as applicable legislation. Yourorganization’s brand and business can be severely damaged if external reporting is notaccurate and aligned to the organization’s core purpose.Following an open and honest approach promotes accountability and builds trust andthe organization’s reputation. Ultimately the only accountability that we have for our actions today is ourselves. Canyou project into the future and imagine addressing your great-great grandchildren?Can you look at them honestly and say, "I did what I could to make the planet habitablefor you?" Are you communicating and reporting to show this is the case?This section highlights communication and reporting considerations and good practicesto demonstrate you are taking accountability for the sustainability performance of yourorganization, and to build trust in and the reputation of your organization with yourstakeholders.8. Sustainability communication: accountability, trust and reputation Risk management & sustainability report 2023As part of the normal operations of an organization we commonly say what we are doing and why. This applies to sustainability as for any other aspects of our activities, such as financial, HSE, and operational efficiency reporting.Communication is needed for many reasons and for many differentstakeholders, from internal reports to monitor progress and performance, toreports required by regulators, to communications with customers and localcommunities.37

8.1 The value of, and dangers in, sustainability reporting Risk management & sustainability report 2023Your sustainability messaging/reporting can be a springboard for growth, and a positive differentiator with stakeholders. Sustainability messages need to go beyond what is required by legislation to have a positive value for your organization and address what is important to stakeholders in an open, honest and transparent manner. 8.1.1 BenefitsImproved stakeholder trust and confidence in, and loyalty to, your organization andits brands, for example by demonstrating to stakeholders that you are committed totransparency, and they can have confidence in what you report. Improved financial performance (e.g., sales and / or profits) through increasedcustomer loyalty helping protect the organization in difficult (economic) periods.Improved operational resilience (ability to withstand negative events and publicity)through increased customer and stakeholder loyalty helping protect theorganization when unexpected events or publicity occur, for example the lattercould be due to fast-moving social media messaging.Greater awareness of your sustainability strengths and weaknesses, andopportunities and threats, gained through thoroughly understanding your context.This can lead to a vison and strategy which is attractive to investors andstakeholders.Improved decision-making based on, for example, greater awareness and clearersustainability performance information which is openly available, and stakeholdershave confidence in.Attracting, motivating and retaining employees and building their skills andknowledge, thereby strengthening the organization. Attractiveness to financial organizations/investors, i.e., improved access to moneythrough demonstration and delivery in line with their sustainability (ESG) priorities.Increased innovation and operational improvement enabled by better funding,motivated staff, engaged partners, etc. which drives continual improvement.Some of the potential benefits of developing, leading in and being seen to lead insustainability are:8.1.2 Potential dangers; errors and omissionsThe first shows the importance of taking the board view on sustainability andreporting on all that is important to your stakeholders.The second shows how errors/false reporting can damage your reputation, and theimportance of verifying what you are claiming to be sure it is true.Managing your sustainability well helps steadily deliver benefits and build value.Unfortunately, errors, omissions and unclear reporting, whether accidental orpurposeful, can wipe out value fast. This is illustrated by the two case studies provided on “Tesla’s costly ‘pick and mix’approach to ESG” and “Exposure of inaccurate and false claims by Cadbury”:38

Case study - Tesla’s ‘narrow’ approach to ESGTesla, Inc. is an American automotive and clean energy company based in Austin, Texas. Tesladesigns and manufactures electric vehicles, battery energy and solar roof tiles. At the time ofwriting, Tesla is one of the world's most valuable companies and remains the world's mostvaluable automaker with a market capitalization of more than US$600 billion. Tesla’s focus on the ‘E’ to the inadvertent exclusion of the ‘S’ and ‘G’ should be a cautionary talefor businesses touting their sustainable credentials in a way that just happens to match theirexisting business strategy. There is of course nothing wrong with this approach, but only if thecorporate strategy is genuinely sustainable. There are numerous examples of companies havingthe awareness that poor sustainable credentials will harm their brand, or that a seeminglygenuine concern for the type of environmental and societal impact their products and servicesleave behind. Greenwashing, covered in more detail in a later section, is the re-packaging of adestructive business practice as being a force for good in the world, but not actually changingmechanics – or promoting a sustainable initiative whilst ignoring the negative impact of otherparts of the business.Case in point, Tesla’s mission statement is to accelerate the world’s transition to sustainableenergy (Tesla, 2022), a noble goal and depending on which lens or ESG domain you lookthrough, it seems like they are on track with Tesla making around 75% of all new electric vehiclesin America (Forbes, 2022). However, sustainability means the entire value chain needs to be considered including mineralsused to make electric vehicles, i.e. sourced from sustainable mining companies with future readyworking practises. Strong focus on one area of sustainability with disregard for other areas, likeracial discrimination and bad working conditions in some factories, raises questions about theoverall sustainability strategy being implemented. As discussed earlier in the document, a balance needs to be made across all sustainabilitytargets. Having a strong ‘E’ and a poor ‘S’ and ‘G’, meant that Tesla scored poorly on the S&P DJIESG methodology (S&P Dow Jones Indices, 2022), and was ejected from the S&P 500 ESGindex, a move that resulted in an immediate 6% drop in Tesla’s stock (Go banking rates, 2022)Risk management & sustainability report 2023“This all speaks to the big inconvenient fact about ESG: You can’t keep the baby and throw out the bathwater, you have to accept or reject both”Eric Balchunas, BloombergCase study – Exposure of inaccurate and false claims by CadburyCadbury, a Mondelēz International company, is part of the “Cocoa Life” programme with the tag line; “Building a promising future for cocoa farming communities”. It is a scheme with the goal of ensuring Cadbury chocolate comes from ethical sources. Cadbury chose to promote the Cocoa Life logo and pledge on all its packaging to assure consumers the chocolate they are buying comes from ethical sources. One specific commitment was to monitor for child labour and remediate in Ghana. So consumers bought the product trusting that the Cadbury brand did not employ child labour in its supply chain. In April 2022, Channel 4 aired an episode of Dispatches exposing these claims as false and had footage of children on Ghanaian cocoa farms, as well as interviews with farmers debunking these claims.39

Customer/stakeholder expectations, legislative and regulatory requirements, guidelines,lifecycle analysis, industry codes of conduct, ethical standards, activism - these are justa few considerations that organizations may need to navigate when reporting andcommunicating on sustainability. It is a constantly evolving landscape and should bechecked regularly.Managing your sustainability risks is increasingly important when obtaining finance.Legislation compelling financial institutions to critically examine and report onsustainability risks within their portfolios is already in place in many jurisdictions, andmay get more onerous in the future. Those providing finance will increasingly seekinformation from you on your sustainability management and performance. Financial regulators are requiring organizations to address emerging (future) risks intheir annual reports. These are potential events and uncertainties which could pose asignificant or material risk to the organization in the future (but are not present, aresmall or are immaterial today). Given the nature of sustainability risks it is likely some willbe amongst the emerging risks your organization may need to report on. To identify such risks and report on how they are to be managed you can use foresighttools and scenario planning. These can help you identify emerging risks and define themeasures you will put in place to make your business model more robust and resilientsuch that your organization manages these risks and withstands them should anymaterialise. Reporting should cover the emerging risk you foresee and the measures you have andwill put in place to manage them.Risk management & sustainability report 20238.1.3 Potential dangers; contagionAn organization's brand value and reputation can be impacted by issues and events inits supply chain, or in the business sector operated in, or even in the country it operates.Imagine the negative impact the news of inaccurate and false claims, such as thosemade by Cadbury regarding child labour on the Ghana cocoa plantations, could have onyour organization if it were also making chocolate using cocoa from farms in Ghana -even if your source did not use child labour. Having transparent and open communication and reporting, can help reduce the impactof such event on your organization with a crisis management model that reacts in a fast,timely and robust manner.8.2 Reporting drivers; regulations, standards and good practiceUndoubtedly legislation will increase over the coming years, aswill expectations and penalties. Legislation that truly holdsboards and organizations liable for their environmental progress,however, may not be in place until 2030 at the earliest. Information on a selection of reporting frameworks andstandards is provided in the Section 9 “Signposting”.40

Risk management & sustainability report 2023It is important to designate an individual or team to manage this process, which shouldinclude an internal sign-off process before information is released externally. Thereshould be clear accountabilities, traceability, and training and awareness programmes,so employees are aware of the importance and implications of sustainability reportingconsiderations. 8.3 Considerations in reporting sustainability8.3.1 GovernanceIt is detrimental for an organization to be perceived to be (or proved to be) making false,inaccurate, incomplete (i.e., with omissions) or opaque sustainability claims. Where there are transitional, problematic or challenging sustainability risks to manage, these shouldbe communicated in an open and transparent manner. Failure to do so will simplyheighten your organization’s reputation risk, with the potential for accusations ofgreenwashing and dishonesty. Scrutiny and public accountability validation is an increasing trend, particularly with thegrowth and power of social media platforms. Accusations of greenwashing anddishonesty are often a consequence for those that misreport or make efforts to concealactions that don’t match their or society’s aspirations. It is difficult to recover trust whenthis happens.8.3.2 Transparency8.3.3 Data quality and statisticsUsing data and statistics can be very powerful in communications and reporting to validate claims, showcase progress and positively influence the reader. Conversely, data and statistics in communications and reports can be mis‑understood or mis-interpreted if presented in a misleading or unclear manner. It is also important to include managed omissions and/or assumptions when presenting data and claims, to ensure transparency.2As with the written word, data and statistics should be always presented in a clear, open and transparent manner. When, for example, benchmarking against others using publicly available data, it is important to ensure the efficacy of that data stands up to scrutiny. Therefore, extensive research and data verification is of utmost importance when going through this process.The Science Based Targets initiative (SBTi) is an initiative for setting targets for emission reduction targets in line with climate science and Paris Agreement goals. It is a collaboration between the CDP (was Carbon Disclosure Project), the United Nations Global Compact, World Resources Institute (WRI) and the World Wide Fund for Nature (WWF). Following the methodologies within such initiatives should help sustainability reporting based on appropriate data and analysis. 41

Risk management & sustainability report 20238.3.4 Due diligence, assurance and verification in what you reportIf you do not report as per the financial guidelines in your respective territories, you maynot only have a compliance failure, but may be assumed to be hiding bad performanceor significant risks. To protect against this and other financial reporting errors, you needto get your accounts audited. The auditors should highlight the discrepancies andcorrections can be made before they are published. The same is true for sustainability statements. There is value in getting thesustainability impact and risk statements you make in annual reports/financial accounts,on websites as part of marketing activities, independently checked. A range oforganizations are providing assurance services and kite-marks for sustainability reportsand claims. These help organizations to avoid misleading claims and provide greaterconfidence in what is reported.Promoting your sustainability credentials in marketing materials is a great way todemonstrate you are listening to and responding to consumer trends, public opinionand wider environmental and social concerns. Such promotions aid product sales andrevenue generation, along with building the value of a brand. Any promotional materials should always be reviewed, and stress tested againstinternal sustainability due diligence checks or internal sustainability audit committeereview, codes of conduct and sustainability claims. It is critical that what is said publiclyabout an organization’s actions and performance related to sustainability goals,activities and risks are both true and robust. False claims in marketing and promotional material carry a high reputation risk, (see theCadbury Case study). Organizations can benefit from seeking endorsement by sustainability schemes orthird-party verification of their data. This is especially important with carbon reductionclaims which would benefit from independently review. The dangers of not verifying the benefits of a sustainability initiative is illustrated bycarbon offsetting claims being made and discussed in these two articles. Assessing the carbon capture potential of a reforestation projecthttps://www.nature.com/articles/s41598-021-99395-6, (David, et al., 2021).On the misuse of nature-based carbon ‘offsets’https://www.naturebasedsolutionsinitiative.org/news/on-the-misuse-of-nature-based-carbon-offsets, (The Nature-based Solutions Initiative, 2021).42

Risk management & sustainability report 2023The articles explain very clearly that claiming carbon offsets from nature-basedsolutions (NbS), is fraught with issues. Intensive examination of the actual carbonoffsets is required along with active ongoing monitoring of the projects to ensure theyare maintained and that they continue to provide an active carbon sink. The principalfindings of the second articles are reproduced in the box with the title “On the misuse ofnature-based carbon ‘offsets’”.“Nature-based solutions (NbS*) are being misused for greenwashing. Promoting NbS as carbon ‘offsets’ while continuing business as usual in fossil fuel use is not a solution to climate change. In fact, it can encourage continued or even increased fossil fuel consumption leading to more emissions overall and can distract from the need for systemic change and a transition to a nature-positive economy (Seddon, et al., 2021).NbS can make an important contribution to reaching net-zero emissions, but only if combined with dramatic cuts in greenhouse gas emissions (e.g. by burning less fossil fuel). Well-designed NbS, including the vital protection of carbon stored in intact ecosystems, play a key role in climate change mitigation as well as supporting other societal goals such as climate change adaptation, economic recovery and biodiversity conservation (Griscom, et al., 2020), (Chausson, et al., 2020), (Dass, Houlton, Wang, & Warlind, 2018). However, if they are not combined with rapid emission reductions, then impacts of climate change such as fires, droughts and disease will cause the carbon stored in ecosystems to bereleased back into the atmosphere, leading to further acceleration of climate change (IPCC, 2018), (Lovejoy & Nobre, 2018).Poor quality nature-based ‘offsets’ may have limited or negative effects on climate change mitigation as well as adverse impacts on biodiversity. Poorly planned carbon offset schemes, such as inappropriate tree planting on natural grasslands and peatlands, can add more carbon to the atmosphere than they take up (as carbon-rich soils are disturbed) (Brown, Castellazzi, & Feliciano, 2014) (Friggens, et al., 2020). There can also be negative impacts on biodiversity as the many species that depend on these naturally open habitats are lost (Veldman, et al., 2015), (Fleischman, et al., 2020).Poor quality nature-based ‘offsets’ can lead to human rights abuses. Some projects have been implemented without regard to the legal or customary land use rights of local people (Cavanagh & Benjaminsen, 2014), (Barletti & Larson, 2017). When this occurs, carbon offsetting can shift the burden of reducing emissions from wealthy countries, organizations or individuals (who have contributed the most to climate change) to vulnerable people in the Global South (who have contributed the least) (Hickel, 2020). Furthermore, projects that are not led by or co-implemented with local people and fail to bring social benefits are less likely to be maintained as carbon stores in the long term (Fleischman, et al., 2020), (Fa, et al., 2019).Fossil fuel extraction is often socially and ecologically destructive (Healy, Stephens, & Malin, 2019) (Bruederle & Hodler, 2019) (Beyer, Trannum, Bakke, Hodson, & Collier, 2016). Using NbS to ‘offset’ the use of fossil fuels distracts attention from addressing these harmful impacts on people and the environment.”Case study - On the misuse of nature-based carbon ‘offsets’Nature-based solutions (NbS*) are being misused for greenwashing. The following points are an extract from the article “On the misuse of nature-based carbon ‘offsets’” referenced.1.2.3.4.5.43

Risk management & sustainability report 20238.3.5 Progress and benefitsThe value delivered by sustainable actions can be tangible, for example: recycling waterwill involve a capital expenditure but may well reduce operating expenditure andprovide a measurable (tangible) financial return. More often it is more intangible ordifficult to measure ultimate outcomes; proactive sustainability management can, forexample, reduce emissions causing climate change, help retain key personnel(supporting knowledge retention), retain customers (making sales more robust), reducerisk (e.g., of child labour in your supply chain), and attract investors. As alreadydiscussed, your actions to be more sustainable in the futures may be a journey withuncertainties on the end solutions. Sustainability reporting should therefore look to cover inputs, activities, outputs,outcomes and impacts for the different sustainability actions you are taking. It is asvaluable to report on progress along a journey to an ultimate solution as it is to showshort term improvements in sustainability outcomes and the benefits they deliver.8.3.6 Extended Enterprise ReportingSetting achievable and compelling goals and putting in place frameworks, exploringand agreeing the key values with your suppliers and contractors as part of agreedterms and conditions.Following a partnership approach to assist suppliers and contractors in achievingtheir own sustainability transition and viability; exercising good corporatecitizenship.Ensuring credible and verifiable data sources and data collection, reporting thisopenly, extensively and in a timely manner to enable joint monitoring and correctiveactions.Sustainability, as previously discussed in this document, encompasses the entire valuechain of an organization; from suppliers through production to the final customer. Stakeholders are looking at how organizations are collaborating with all parties alongthis value chain including the governance, reporting and mitigation of any risks anddevelopment of opportunities. There are several approaches and methods organizations can use to ensure their supplychain and customers operate in a manner consistent to their brand values. Keyconsiderations include:Supply chain organizations are an extension of your organization’s operations. Ensuringthe right accountability and tools are in place is essential to safeguard against apotential risk to your reputation, and to strengthen trust with your stakeholders. Supplier risk/opportunity assessments can be used to gather data for due diligencechecks and to support reporting. These should be in line with the level of sustainabilityrisk and impact the supplier poses, whether based on value of contract, activity,location, etc. Organizations’ can go a step further and undertake supplier audits eitherdesk/paperwork based or physically visit the operational facility. Records should beretained by the customer to document findings and address issues with the suppliers,as well as to inform your communications and reporting.44

Reality Checkwebsites, annual reports, marketing, contracts with both customers and suppliers?Are you transparent about that prioritisation? Do you have a communication plan around that prioritisation, if challengedor if negative stories appear in the media?Are the sustainability goals of your organization and your financiersaligned?Are you tracking all your sustainability commitments, across all availablesources, including but not an limited to; Have you prioritised some areas of sustainability over others? Have you cross checked your sustainability credentials against those of theorganizations from which you seek finance? Where you are tracking your progress toward your sustainability goals. Is thedata clear and transparent?Have you rigorously validated that data either internally or through anindependent external party?Are your claims and reports independently verified?Risk management & sustainability report 20239. Signposting A brief background and history of sustainability (Section 9.1).Selection of information sources (Section 9.2).Some tactics to consider in developing you approach to managing sustainability risksand impacts (Section 9.3).Sustainability/ESG reporting - Standards, Frameworks and Guidelines (Section 9.4)Glossary of common terms used around sustainability (Section 9.5).This section includes information which readers can use and access to support theiractivities in the sustainability and risk management aspects of their organization. Itincludes the following:9.1 A brief background and history of sustainability The precursor of CSR and sustainability was in the 18th and 19th century and startedwith rich industrialists. Companies such as Michelin and Cadbury, which used naturallygrowing raw materials like rubber latex and cacao needed to ensure a continuous andsustainable source of material. This resulted in a focus on the growing and improvementof the natural environment. Other large industrial sectors such as metals and mining or oil also needed to provideadequate social accommodation and retain workers in areas close to where the naturalmineral deposits were located. 45

Risk management & sustainability report 2023People: the positive and negative impact an organization has on its most importantstakeholders. These include employees, families, customers, suppliers, communities,and any other person influencing or being affected by the organization. Planet: the positive and negative impact an organization has on its naturalenvironment. This includes reducing its carbon footprint, usage of natural resources,toxic materials and so on, but also the active removal of waste, reforestation andrestoration of natural harm done. Profit: the positive and negative impact an organization has on the local, nationaland international economy. This includes creating employment generatinginnovation, paying taxes, wealth creation and any other economic impact anorganization has.While this was possibly seen today as slave labour and employees were put underpressure, houses, schools and infrastructure were all provided for by these largeindustrial companies. Below we have provided some links for more recent backgroundinformation on sustainability and its history (Links new windows)1987 - Brundtland Commission report for the United Nations. This defines the concept of sustainability as "meeting the needs of the present withoutcompromising the ability of future generations to meet their own needs." Our CommonFuture", also known as the Brundtland Report, was published on October 1987 bythe United Nations through the Oxford University Press. 1994 - World Bank defines “Sustainability” Sustainability is defined “as a requirement of our generation to manage the resourcebase such that the average quality of life that we ensure ourselves can potentially beshared by all future generations.” Sustainability definition Policy Research Workingpaper 1302 by Geir B. Asheim 1994 - John Elkington coins “People, Planet, Profit” approach to sustainability Widely accredited as one of the founders of the sustainability movement, JohnElkington published his book “Enter the Triple Bottom Line. His basic concept of“People, Planet and Profit” entered mainstream thinking and application ofsustainability and approaches towards sustainable development: 1998 - International Finance Corporation (IFC) announces first sustainability policy In 1998, the International Finance Corporation (IFC), part of the World Bank, adoptednew environmental and social review procedures and safeguard policies for investors. In2012, these procedures were re-viewed and relaunched as performance standards 46

Risk management & sustainability report 20232000 - UN Millennium Goals announced As part of the UN Millennium declaration, eight fundamental values essential tointernational relations were identified and published, along with targets. Theseencompassed environmental sustainable development. They were updated andexpanded in 2015 with the Sustainability Development Goals. 2003 - XBRL Business reporting language XBRL (eXtensible Business Reporting Language) is a freely available and globalframework for exchanging business information. XBRL allows the expressionof semantic meaning commonly required in business reporting. The language is XML-based and uses the XML syntax and related XML technologies such as XML Schema,XLink, XPath, and Namespaces. One use of XBRL is to define and exchange financialinformation, such as a financial statement. The XBRL Specification is developed andpublished by XBRL International, Inc. (XII). https://www.xbrl.org/ 2006 - Coining of the term “Environmental, Societal and Governance (ESG) As part of a major call to action, in January 2005 former UN Secretary General KofiAnnan wrote to over 50 CEOs of major financial institutions. He invited them toparticipate in a joint initiative as part of the UN Global Compact, led by the IFC and theSwiss Government. This call to action resulted in the IFC and partners hosting a conference in 2006 titled“Who Cares Wins”. In their post-conference report, the term ESG was first published. Ayear later the IFC published their sustainability framework as the benchmark forinvestors to adopt this new ESG approach in achieving their sustainability goals. 2015 - United Nations Sustainability Development Goals (UNSDG) The UNSDG a list containing 17 long term goals around sustainability. It was publishedas “an urgent call for action by all countries - developed and developing - in a globalpartnership.” 2019 - Review and impact of the Triple Bottom Line Forbes published an article “What The 3Ps Of The Triple Bottom Line Really Mean” byLeadership guru and influencer Jeron Krannjenbrink. He examined the impact andinfluence of John Elkington’s three P’s – People, Planet, Profit 25 years afterpublication. He introduced the concept of prosperity instead of profit and placed sustainabilitystraddling all three. 9.2 Selection of information sourcesThere are many information sources of relevance to risk and sustainability. A few selected sources are detailed below. It is recommended that you research more widely to gather information in support of your risk and sustainability activities.47

Risk management & sustainability report 2023B-Corp B-Corp is a not-for-profit network and movement with a set of standards adopted by its members to “transform[ing] the global economy to benefit all people, communities, and the planet.” Its membership comprises multi-national and large enterprises, as well as SME’s. https://www.bcorporation.net/en-us Ceres Ceres is a Boston USA based not-for-profit member organization that is “transforming the economy to build a just and sustainable future for people and the planet.” Its members comprise of investors and Fortune 100 and multi-national companies. https://www.ceres.org/homepage Green Claims CodeA UK government guide to help businesses and organizations making environmental claims.https://www.gov.uk/government/publications/green-claims-code-making- environmental-claimsForum for the FutureForum for the Future is a leading international sustainability non-profit with offices in London, New York, Singapore and Mumbai. They specialise in addressing critical global challenges by catalysing change in key systems. For over 25 years, they have been working in partnership with business, governments and civil society to accelerate the shift toward a sustainable future. https://www.forumforthefuture.orgShared Value Initiative The Shared Value Initiative is a US based not-for-profit organization that “is building a community of leaders who are activating their own potential for impact … who want to make the world a more equitable, healthy and sustainable place.” Their community comprise a corporate-led World Advisory Council and a network of global regional initiatives. https://www.sharedvalue.org48

Appointing a portfolio manager tofind sustainability marketopportunities Many of the most successful sustainability strategies havestarted with a commercial thrust co-ordinated by a seniormanager creating a ‘virtual’ portfolio of sustainability productsand services. Examples include Deloitte, GE, IBM and Siemens. Creating a ProgrammeManagement Office to implementthe strategy For firms with a broad range of energy, environment andsustainability activities, successful execution requires aProgramme Management Office staffed by 5 to 25 employees.Examples include Mars and Tesco. Hiring experts to identify andmitigate sustainability risks Sectors such as banking, mining, oil and gas need to respondto sustainability risks and compliance requirements which havean increasing impact on a firm’s overall financial performance.Examples include Alcoa, JP MorganChase and SwissRE. Consolidating sustainabilityleadership in a single senior role Sustainability strategies typically include both a corporatecomponent as well as a market-facing component – whetherthat is sales related or brand related. AECOM, France Telecomand SAP combine the two sets of responsibilities in a ‘ChiefSustainability Officer’ role. Training product managers andengineers on eco-design principles More mature sustainability programmes move from sellingexisting sustainability benefits, such as superior energyefficiency, to training product designers and engineers on eco-design and cradle-to-cradle concepts. Example firms includeAlcatel-Lucent, ARUP and Interface FLOR. Targeting business developmentdirectors at sustainability Given that the sustainability market opportunity is not yet welldefined, giving seasoned business development directors abite at the cherry is best practice. Firms succeeding with thisapproach: Capgemini and Marks & Spencer. Turning national CSR roles into aGlobal Sustainability Director role A strategic review of sustainability governance often finds thatfragmented, national CSR roles hinder the implementation of aglobal plan. A common best practice is to appoint a GlobalSustainability Director with the strongest delivery track record. Risk management & sustainability report 20239.3 Some tactics to help you approach managing sustainability risks and impacts(NB- https://wilburystratton.com/blog-post/10-sustainability-mistakes-your-business-is-making/ )49

Risk management & sustainability report 20239.4 Sustainability/ESG reporting - Standards, Frameworks and Guidelines9.5 Glossary of common terms used around sustainabilityThe assessment that a project will have sufficient funds to meet all its resourceand financial obligations, whether the fund continues or not. The capacity of an investment project to generate the expected return for the investor. It means selling a product or service at a price that not only covers expenses but also creates a profit.In the crisis situation it means to meet financial obligation within other alternative possibilities tofund your activities (be able to be self-financed). An organization’s capacity to obtain revenues in response to a demand in order to sustainproductive processes at a steady or growing rate to produce results and obtain a surplus. 'The social responsibility of business encompasses the economic, legal, ethical, and discretionary[later referred to as philanthropic] expectations that society has of organizations at a given point intime’ (synthesis of Carroll 1979, p. 500; 1991, p. 283). Today it could be said that societal expectations are for organizations to perform sustainably andmeet ESG expectations. It can be seen that there is significant commonality and overlap in what are the expectations oforganizations under the headings of “sustainability”, “ESG” and “CSR” as described above. In thisdocument we will use the term “sustainability” to cover all the aspect described above. Term Business (financial) sustainability source: IGI Global Corporate Social Responsibility (CSR) source: International Journal of Corporate Social Responsibility50

Risk management & sustainability report 2023“False information spread in order to deceive people.” Cambridge Dictionary“… instead of using the term ‘fake news’, is using ‘disinformation’ to describe “the deliberate creationand sharing of false and/or manipulated information that is intended to deceive and misleadaudiences, either for the purposes of causing harm, or for political, personal or financial gain.” Houseof Commons Digital, Culture, Media and Sport Committee:Disinformation and ‘fake news’: Final Report “Disinformation is a subset of propaganda and is defined as false information that is spreaddeliberately to deceive people. It is sometimes confused with misinformation, which is falseinformation but is not deliberate.” Wikipedia“Disinformation is information that is false, and the person who is disseminating it knows it is false. Itis a deliberate, intentional lie, and points to people being actively disinformed by malicious actors.”Term Dis-information Mis-truths or false information. Intentionally misleading. In the military context, disinformation isrecognised as a weapon of war.Selected definitions include:source: Media DefenceEnvironmental, Social and Governance (ESG) ESG is the acronym for Environmental, Social, and (Corporate) Governance, the three broad categories, orareas, of interest for what is termed “socially responsible investors.” They are investors who consider itimportant to incorporate their values and concerns (such as environmental and social concerns) intotheir selection of investments instead of simply considering the potential profitability and/or riskpresented by an investment opportunity. The overlap between social and environmental progress andfinancial gain is called the shared value opportunity. source: Corporate Financial InstituteGreenwashing Greenwashing is the expression used to challenge or debunk the facts presented to the public incompany reports, marketing and PR materials. It calls out lies, false claims and mistruths intended tomislead the public. Greenwashing can be a mix of Misinformation and Dis-information, or just Dis-information only to make people believe that your company is doing more to protect the environmentthan it really is”.source: Cambridge Dictionary“when companies pretend to be environmentally friendly when in fact they are not.”source: The Urban DictionaryMisinformation“Wrong information, or the fact that people are misinformed” source: Cambridge Dictionary“Misinformation is incorrect or misleading information.. It is differentiated from disinformation, which isdeliberately deceptive.”source: Wikipedia“Any information that contradicts corporate media and government narratives, regardless of its actualveracity.”Urban Dictionary 51

Risk management & sustainability report 2023AppendixRisk-related standards to support the identification of sustainability goals and implementation of solutions to achieve themThe internationally recognised risk management standard, ISO 31000:2018, togetherwith its subsidiary standards, already provide an established framework for themanagement of risk flowing from all forces impacting an organization’s goals andobjectives, including sustainability. The principles, framework and process set out in the standard do not dictate anapproach framed solely around short-term, currently recognised threats, but extendinto the medium and long-term, as well as to opportunities. Risk = threats +opportunities.The standard therefore helps organizations deal with threats, both known andunknown, but also encourages innovation. It stresses the importance of taking both anintegrated and dynamic approach, of particular importance when consideringsustainability.The process set out in the standard encourages organizations to look holistically at theirwhole scope and context, both internally and externally. This includes, inter alia, poorlyperceived or defined, fast or slow acting, complex and low probability risks. Theprinciples and systems described are applicable to all types of organization, both largeand small. ISO 31010 builds on this by providing a summary of techniques for risk assessment, alsoof use when evaluating threats and opportunities flowing from sustainability.BS 31100 provides more detail on how to implement these systems, whilst ISO IWA 31explains how to integrate risk management with systems for quality, environmentalmanagement and other ‘management systems’ areas.ISO 31000:2018 Risk management – GuidelinesISO IEC 31010:2019 Risk management – Risk assessment techniques BSI 31100:2021 Risk management – Code of practice and guidance for the implementation of BS ISO 31000:2018ISO IWA 31:2020 Risk management – Guidelines on using ISO 31000 in management systemsOther international and British standards also worthy of reference when developing approaches to sustainability include the following on quality management, environmental management, business agility, governance and resilience:ISO 9001:2015 Quality management systems – RequirementsBS PAS 1000:2019 Business agility – Concepts and framework – Guide BS 13500:2013 Code of practice for delivering effective governance of organizationsISO 14001:2015 Environmental management systems – Requirements with guidance ISO 22301:2019 Security and resilience – Business continuity management systems – Requirements52

Risk management & sustainability report 2023ISO 22316:2017 Societal security – Guidelines for organizational resilience: Principlesand Attributes ISO 37000:2021 Guidance for the governance of organizationsBS 65000:2022 Guidance on organizational resilienceFurther guidance is also available from these additional sources:COSO Enterprise Risk Management – Integrating Strategy with Performance – June 2017HM Government – The Orange Book – Management of Risk – Principles and Concepts – 2020ICAS and IFRS Foundation – The Sustainable Development Goals, integrated thinkingand the integrated report – Carol A. Adams – 2017Global Reporting Initiative (GRI), United Nations Global Compact (UNGC) and WorldBusiness Council for Sustainable Development (WBCSD) – SDG Compass, the guide forbusiness action on the SDGs – 2015 53

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