How Risk, Regulation and Technology are Forging a New Climate Economy

The convergence of key technologies, the existential global risks that climate change present as well as fast emerging government policies are creating a new climate economy. What does this mean? The climate economy means companies creating goods and services which drive decarbonatization. Climate will become the new lens through which all activities are viewed and sustainability will disrupt virtually every sector and industry from manufacturing to transport to energy.

The most obvious example of the climate economy are the wind turbines which increasingly dot the seas, oceans and hills across the globe. But the climate economy is far wider than just renewables, it means any goods and services that reduces greenhouse gas emissions or addresses the impact of climate change. This could mean companies that produce more efficient engines for trucks to firms focused on protecting global forests

The climate Economy is broadly connected to the rise of Environmental, Social and Governance (ESG) investing. The ESG movement attempts to tackle with the broader non-financial risks and opportunities of investing. Currently most economic activity in the modern world is entirely dependent on energy which is primarily supplied by carbon emitting fossil fuels. However, times have changed and now renewable energy can compete with fossil fuels on price, consumers increasingly favour climate friendly companies and government policies across increasingly seek to reduce emissions.

The New Drivers of the World Economy

The next few decades will see climate (decarbonisation) and more broadly sustainability (ESG) become the new driving force of the global economy. All business will eventually have to embrace decarbonisation and sustainability. Three main trends will drive this: technology, renewable energy is cheaper than ever and continues to become more efficient, but also other new technologies such as artificial intelligence (for more efficient decision making), growing meat in a lab and industrial batteries will all drive decarbonisation.

A wave of new legislation and regulation designed to encourage decarbonisation such as the Task Force for Climate Related Financial Disclosures (TCFD), the EU Sustainability Taxonomy as well as national level legislation to fulfil climate targets will shift vast amounts of capital away from carbon intensive activities. Much of this climate will need a new home, which is where new wave of innovative companies in the climate and clean tech fields will emerge as well as existing firms with the ability to pivot to the new reality.

Perhaps above all the climate economy will be sparked by the unfolding reality of climate change, each unpredicted wildfire, each temperature record broken, each mm of sealevel rise will force change onto society and inspire new companies in the Climatetech space and force governmental and geopolitical shifts.

A Grand Opportunity

As the global economy shifts toward decarbonisation the opportunities for Climatetech firms will emerge rapidly. Some parts of the world with more favourable regulatory regimes and a technological edge will become leaders in Climatech. China despites its record emissions is a leader in the Climatetech field. Many US firms so often leaders in innovation have taken up the challenge to decarbonise.

Perhaps the key firms in building the climate economy are those which are still emerging. Start-ups could in time become key drivers decarbonisation through innovation and imaginative use of technological solutions. The new wave of climate investment is looking beyond renewables to transform agriculture, food, mobility and much else beside. For example firms such as Beyond Meat, Impossible Foods and New Wave Seafood are offering plant based meat and seafood substitutes which reduce demand for carbon emitting and deforestation causing meat ocean ravaging seafood.  

Technology Rules

Solar energy has dropped 89 percent in cost over the last decade and wind power has declined by 70 percent in the same period of time. This demonstrates the power of applied technology which is a key element to the success of many Climatetech firms. The climate economy is very much tied to the so called Fourth Industrial Revolution. Like previous revolutions before it promises major improvements in efficiency and huge upheavals in society.

The Fourth Industrial revolution promises a dramatic leap forward in the application of robotics, artificial intelligence, quantum computing and energy storage, as well as the mass connection of society and businesses through the internet of things and 5G.

These new developments bring huge global risks such as the increasing exposure of infrastructure to cyberattacks. But also major benefits, more efficient storage and distribution (through smart grids) of energy makes renewables more hugely more attractive, overcoming their traditional limitations such as windless days and night time. Artificial Intelligence advances can help humans monitor climate change risks such as deforestation as well as providing more detailed and accurate predictions and simulations of climate change.

Other new technologies will also prove vital in the decarbonisation. These include industrial batteries for storing energy, energy efficiency measures (such as more efficient home appliances), cutting edge energy such as hydrogen as well as the electrification of cars, planes, trains, ships all of which will ease the move towards decarbonisation.

Services that employ technology such as those which measure climate risk, carbon trading platforms, measurement of ESG risks and measures will all have a part to play helping service the climate economy.

The New Regulatory Framework

The EU has led the way in providing a regulatory framework for decarbonisation, countries that follow can grow and nurture the climatetech firms of the future.

Nations like Russia are likely to favour a rearguard action and continue backing oil, gas and coal for as long as possible in the hopes that the shift to renewables will be slower than hoped. Others like Saudi Arabia can hedge their bets – able to host vast solar arrays in empty deserts and even become an innovative exporter of blue hydrogen while remaining a major oil producer.

The Task Force for Climate Related Financial Disclosures is designed to push Banks into diverting financial resources into climate safe investments. By identifying the assets at most risk from climate risks in terms of either physical or transition risks banks can avoid projects exposed to climate change. The G7 recently moved towards making TCFD reporting mandatory.

This mass movement of capital will impact over time oil and coal producers who will be unable to access capital as it becomes clear that investing in these industries is not only environmentally damaging but also financially unsustainable. The launch of the TCFD has given rise to a new similar piece of regulation which attempts to measure the financial impact of biodiversity loss.

The EU has recently published its long-awaited sustainability taxonomy which will clearly define which economic activities contribute to decarbonisation. This will make it clear to investors which companies are backing climate friendly projects and which favour carbon intensive activities.

Carbon pricing or emissions trading is another instrument of change. Putting a price on carbon encourages polluters to reduce emissions. The EU is planning to extend its scheme beyond large firms to buildings and transport. This does risk a backlash if users are landed with big bills to reflect the cost of change.

Geopolitical Winds of Change

China’s Belt and Road Initiative (BRI) was built partly so China could secure oil, gas and raw materials such as iron ore, all key to Chinese economic development. The rise of the climate economy could mean geopolitical battles for materials such as cobalt, copper and lithium all vital to develop electronics, batteries and cleantech (A wind turbine uses 4.7 tonnes of copper). This will be mirrored by the fall in use for fossil fuels and materials associated with that industry.

The Next Wave of Government Action

The United States has new impetus with a major decarbonisation plan for the US aiming at a 50 percent reduction on 2005 levels of carbon and international financing for decarbonisation of developing countries is underway. This legislation alone may spur other countries onto more ambitious plans. Perhaps the most critical achievement of the plan will be the demonstration effect.  

The US and other climate action leaders need to show and prove that societies and economies can continue to thrive in spite and because of decarbonisation. The success of these plans will help dispel doubts and excuses for countries still planning a fossil fuel future who can take up new targets with confidence of a positive outcome.

China Laggard and Leader

China is home to 40 percent of solar capacity and roughly one third of global wind power. Its bus fleets are nearly all electric and it is a world leader in terms of electric vehicles being sold. Solar prices have dropped 80 percent wind turbines while lithium batteries have dropped one sevenths of the cost compared to a decade ago. On these terms China is global climate leader.

This claim comes with a major caveat: China is doing little in the short term to decarbonise. The country remains hopelessly hooked on coal and oil imports to power an economy rapidly rebounding from the shock of Covid. China has promised to cap carbon emissions by 2025 but for this to happen needs to rapid uptake of renewables, energy efficiency measures and a major unprecedented scaling down of coal use.

Countries that fail to embrace the climate economy will face a number of risks: failing to keep up with international regulation like the TCFD and EU Taxonomy leaves them open to transition risks. Continued focus on fossil fuels for countries like Indonesia, Russia, China and Iran make the shift to renewables harder and more painful when it does inevitably happen.

The Shift has Started

There is a long road ahead before the climate economy is a reality. The companies and countries that forge ahead with change now are likely to be the winners. Companies that fail to embrace new green regulation, ignore public sentiment and growing climate risk and geopolitical change will see themselves fall behind and increasingly out of sync with fast changing times. For start-ups and new ventures focused on decarbonisation the next decade will be a golden era for growth as the climate economy picks up momentum.

Quick Guide: The EU Taxonomy on Sustainable Finance & why it is Important

Why Create a Taxonomy?

The 2015 Paris Agreement and 2030 Agenda for Sustainable Development were created to tackle the major global risk – climate change. But these agreements created a problem. Plans to decarbonise economies had to actually be put into action. So the EU Commission developed the Action Plan for Sustainable Development and then the Technical Expert Group (TEG) on Sustainable Finances to tackle this issue.

The TEG set to work and developed the Taxonomy on Sustainable Finance. The Taxonomy creates a shared language, a lingua franca for investors, governments, policy makers and anyone else interested in defining sustainable activities.

This emerged into a pack including the EU Taxonomy Climate Delegated Act which came into force in April 20201 as well as a Corporate Sustainability Reporting Directive, These along with another a further delegated act will define the technical criteria for identifying the economic activities which contribute to climate change mitigation.

The Green List

Described as a “Green list” or classification scheme for sustainable activities as well as a pioneering piece of legislation. The Taxonomy will create a common language and principles for firms and investors around green investing. It will be a living document designed to change overtime to adapt to new circumstances. The Act is part of efforts to enact the EU’s Green New Deal which promises to shift the EU to a more sustainable future.

The Taxonomy dodges (for now) some critical issues such as nuclear power, natural gas and the climate impact of agriculture. Despite these shortcomings it represents a major milestone in driving Environmental, Social and Governance (ESG) driven investment. It is also likely to influence other nation’s legislation and standards as well as being used by investors across the world as a reference point and guide for their own investing plans.

The Taxonomy lists six environmental objectives which economic activities must help achieve:

1. Climate change mitigation (aka reducing greenhouse gas emissions).

2. Climate change resilience & adaptation (helping the world adapt to a changing climate).

3. Sustainable use and protection of water and marine resources.

4. Transition to a circular economy, waste prevention and recycling.

5. Pollution prevention and control.

6. Protection of healthy ecosystems.

An activity must contribute to at least one of the above points and do no harm to the others in order to be eligible for the criteria. Interpreting the full text of the legislation is likely to keep ESG financing experts, lawyers and environmental specialists busy for a long time.

Who should Use the Taxonomy?

The Taxonomy will be used by banks, insurers and other financial institutions that want to invest in sustainable activities and companies.

How will Users adopt the Taxonomy?

  1. Identify the activities conducted by the company, issuer or covered by the financial product (e.g. projects, use of proceeds) that could be eligible.

2. For each activity, assess whether the company or issuer meets the relevant criteria for a substantial contribution e.g. electricity generation <100g CO2 /kWh.

3. Verify that the Do No Significant Harm (DNSH) criteria are being met by the issuer. Investors using the Taxonomy would most likely use a due-diligence like process for reviewing the performance of underlying investees.

4. Conduct due diligence to avoid any violation to the social minimum safeguards stipulated in the Taxonomy regulation (article 13).

5. Calculate alignment of investments with the Taxonomy and prepare disclosures at the investment product level.

What Information do investors need

Investors will need data about company or issuer performance on the Taxonomy activity criteria for the taxonomy to operate. Data markets will take time to develop as issuers and ESG research and rating companies gather information and data. The data will need to include:

A. Revenue breakdown by Taxonomy – eligible activities, or expenditure allocation to each Taxonomy criteria.

B. Performance against the technical screening criteria, or environmental management data where this is an acceptable proxy for compliance with the technical screening criteria – including DNSH assessment.

C. Management data on social issues: Labour rights policies, management systems, audits, reporting.

Asset managers will then use this investment to create sustainable products and portfolios which will be able to state their levels of sustainability

Sustainable Finance Disclosure Regulation

This information can then be used to demonstrate which products are “light green” (partially sustainable development as objective) or those which are “dark green” – investments contributing to an environmental or social investment.

What do Companies Receiving Investment have to do?

Large or listed firms will have to report on their sustainability risks, the impact of their business on climate and the impact of climate on their business. Firms will have to report what percentage of their future revenues and current activity is aligned with the Taxonomy.

This information will go to investors (see above) who can then use the information to develop financial products and identify in a transparent manner how green firms and financial products really are. This in turn will help the buyers of financial products, shareholders and other stakeholders to get a firm grip of how green their portfolio is.

What Comes Next?

Now the Taxonomy has been published it will come under a great deal of scrutiny as it is a major tool in delivering the Green New Deal. Firms have to start publishing their percentage of their activities which are Taxonomy aligned as soon as 2022.

Doubtless there will be arguments on what should and shouldn’t be included (for example there is a relatively relaxed view on burning wood). The true test will be how much it encourages investors to back sustainable investments. In order to meet the target of carbon neutrality by 2050, there needs to be roughly EUR 1 trillion in sustainable investment a decade. The Taxonomy needs to help investors by establishing a transparent sustainable finance market, free of greenwash for this to be achieved.

The other major achievement may be geopolitical. The Taxonomy could provide an impetus and model for other countries to create similar or complementary legislation, this could be neighbouring UK, the USA, China and Japan. If other countries follow suit this could give sustainable finance the boost it needs to help to truly decarbonise the global economy.

Corporate Resilience and the Pandemic

My latest article published in PRMIA Intelligent Risk – April, 2021 ‘COVID’s impact on cyber and operational risks looks at how corporate resilience has evolved in the face of a major global pandemic. Covid represented an unprecedented global risk factor and a major test of corporate resilience.

The Dragonslayer App matches your personality to different travel experiences around the world to help select an ideal holiday. The App launched three months before Covid hit the USA, so its business model was quickly dead in the water. Rather than packing up, the founder refocused and relaunched the venture in September 2020 as a subscription-based service that gives travellers up-to-date information about COVID restrictions across the globe. The company had taken a radical approach and adapted swiftly to the new environment, demonstrating its resilience in the face of crisis.

The global pandemic was the crisis that no one could avoid. Corporate resilience was tested as businesses were squeezed in many directions: loss of demand, supply issues, and workforces facing sudden mass remote working.

But how has corporate resilience evolved over the course of the pandemic to deal with a business landscape which has moved a decade in a single year?

McKinsey survey

A McKinsey Survey of 300 executives found that half of the respondents reported that COVID exposed weaknesses in their companies’ strategic resilience and that business model innovation was the most effective response. Over 60 percent of the respondents felt that these innovations would last beyond the crisis. Interestingly, 42 percent felt it had weakened their position, while only 28 were in a stronger position.

Companies that were in the right sectors such as online retailers, software firms and pharmaceuticals enjoyed a boom, whereas companies in the vulnerable sectors such as energy, retail and transportation were hardest hit.

Two stories from the retail sector demonstrate how agility and adaptation can be the difference between success and failure.

Traditional retail was one of the hardest hit sectors in the pandemic; busy high streets were left desolate, and shops shuttered.

Traditional retail

Retailers without a significant online presence faced ruin. In the UK, household name, Debenhams, dependent on physical shops and so unable to reach its customers filed for bankruptcy. In contrast, another traditional retailer Mars Petcare innovated quickly during the pandemic by moving beyond traditional lines of dog food and pet products to providing animal telemedicine.

Telemedicine is a field that has shot to prominence in the last year. Mars Petcare demonstrated it is not just for humans, as it helped many veterinarians shift online to treat patients.

Hybrid working

As the world looks gingerly towards a post-COVID world, hybrid working has appeared as a term, which promises to make organizations more resilient. In theory, a more dispersed organization (with staff split between office and home) will reduce dependence on physical buildings, and more flexibility could result in a more contented workforce.

However, hybrid working at this new vast scale is untested. Many workers have to adapt to new technology and another change in working practices. In addition, there is a potential conflict between those who favour working face-to-face and those who prefer technological solutions.

The pandemic has provided a number of lessons for organizations striving for resilience. The companies that are adaptable, agile and understand risks will thrive in the future.

As Microsoft CEO Satya Nadella commented in 2020; “We’ve seen two years’ worth of digital transformation in two months. The quarter is the new year, and the fastest will win”.

The lessons of the pandemic

Adaptability: Organizations can change processes, structures, and business models, or design them with maximum flexibility in order to adapt to new circumstances. For this to work, the organization needs to have a willingness and desire to learn from mistakes and evolve through trial and error. In a similar vein, volatility and exposure to stress, rather than seen as a negative should be viewed positively.

The experience of this (unless taken to an extreme) will help the organization face the future. Adaptability can come at the price of stability. Agility is usually easier for a startup like DragonSlayer but much more difficult for a vast lumbering multinational.

Understanding Risks: Many firms in the software, online delivery, and pharmaceutical sectors did well during the pandemic, but that does not mean they will thrive in another crisis. In fact, their success may blind them to risk in the future. Identifying and prioritizing risks as they appear is critical for a resilient organization. Organizations should be asking what risks will appear in the future, how they will play out over time, and are we equipped to respond effectively to these threats as they appear.

Businesses should employ horizon scanning and identify key emerging risks that will affect them in the future.

Adopting the precautionary principle: Murphy’s Law states, “If anything bad can happen it probably will.” This pessimistic view was borne out by the evidence; most people have a bias towards optimism and a tendency to ignore even obvious risks. For example, the World Economic Forum Global Risk report has been warning of a global pandemic for many years. Inadequate planning in many western countries has created an opportunity for this threat.

Businesses can adopt this principle through contingency planning across business units and stress testing of their activities for weaknesses. Business units should draw up contingency plans and test these in live scenario exercises. Of course, these measures are often time consuming and disruptive, but increasingly organizations will have to adopt them if global crisis and widespread systemic change continues to be the norm.

Taking the Long View: Climate Change and the Military

The new US Defence Secretary Lloyd Austin has declared that climate change would be recognised as a global risk and a major security threat. The contrast with the Trump administration which ignored climate change or actively took measures to make it worse could not be starker. Recognising the problem is the first step to addressing it. Unfortunately, climate change is a major systemic issue which cannot be wished away through policy changes.

Environmental and political groups have long made headlines about climate issues but much less noticed militaries around the world have also been expressing concern and quietly making plans. Climate change is not on its own going to make the world more violent. Instead, it is a threat multiplier, a changing climate will create the conditions that will result in a more dangerous world.

Sea Level Rise

Sea level rise threatens to start destroying many of the world coastal cities in 20 to 30 years time. Thousands of seaside settlements and millions of acres of farmland will be lost to the incoming sea. Migration will start from low level island states in the Pacific. This will be politically explosive as it will effectively mean countries disappearing under the sea and homeless migrants turning up to neighbouring countries.

But the real impact will be felt when megacities like Dhaka, Shanghai and Mumbai start losing their battles with the sea. While some metropolises may try building walls or other defences, ultimately the sea will be unstoppable.

This process is already underway in Jakarta. The wealthy and governments will flee inland or go the new capital planned for the neighbouring island of Borneo leaving the poor to suffer in decaying, drowning cities. The chaos and mass movement of people will cause conflict as people try move to different regions of their homeland or to cross borders in huge numbers creating social upheaval on terrifying scale.

Tensions will flare between newcomers and existing residents, rich and poor. To make matters worse tropical storms and extreme weather will increase in strength creating more disasters which will make living in coastal cities even more undesirable.

Military Installations

Military installations such as naval bases are also vulnerable to rising sea levels and extreme weather. These factors can overcome infrastructure built for different era. It will not have escaped the US Military Command’s attention that a wealthy well developed part of the country, Texas, was devastated by cold weather and snow. The Lone Star State ground to a halt in February 2021 with many losing power and water as result around 80 people died.

The US military has been trying to find ways to cut down on its massive fossil fuel consumption. More use of renewable energy and greater efficiency will cut the bill and reduce carbon emissions and cut energy bills.

Militaries around the world constantly develop scenarios which may occur and test their response. Most obviously this would be war with a rival, but militaries have to respond to many different situations.

All Hell Breaks Loose

One Scenario the Pentagon have imagined is the “All Hell Breaks Loose” where other countries are torn apart by conflict and extreme weather creating overlapping and never-ending disasters. At the same time the military are dealing with trying to provide relief efforts at home.

The US military’s own installations could be at risk. Naval bases are threatened by sea level rises and more frequent storms will mean installations have to be evacuated.

Competition for scarce resources such as water and food are also likely to cause conflict particularly in poorer countries and those with limited resources or that are already experiencing conflict. Covid has squeezed the price of food which has shot up along with many other commodities recently.

Prices will likely fall as the world eventually returns to normal. However, this could take a few years as the world readjusts after Covid which gives plenty of time for unrest or revolution to be encouraged by a hungry fed up population suddenly released from the bonds of Covid isolation. Some analysts linked the Arab Spring to dramatic food prices rises, while this may be simplistic, empty stomachs are a potent reminder of the poor governance and inequities suffered by many.

Food Security and Ethiopia

Covid disruption is one factor then the effects of climate change truly hit home the impacts will be much harsher. Rising temperatures in Africa and the Indian Sub-Continent are likely to reak havoc on agriculture.

Food security are already major concerns in these regions, climate change will make it far, far worse. For example coffee production in Ethiopia and maize growing in Mozambique could be disrupted by 2030 seeing a drop in yields from anywhere between 10 to 25 percent.

The widespread failure of crops will result in food shortages and famines but likely result in export bans which will cause food prices to shoot up across the world. This instability and chaos will put pressure on militaries who might be forced into action to try and stop large scale migrations, act as a humanitarian forces and intervening in conflicts.

Water Wars

As resources such as food and water become scarce, the potential for conflict increases. Egypt and Ethiopia recently came close to war over a dam the Ethiopians were building which threatened to cut the flow of water to the Nile.

Pakistan, India and China face potential conflict over the headwaters of the many rivers which flow from the “third pole” the Himalayas. When disappearing glaciers threaten the flow of the Brahmaputra, Ganges or Indus tensions between the countries facing existential threat could explode into war.

Militaries around the world are waking up to the reality of climate change and threats it poses. While they will not be the biggest advocates for change or mitigation around climate change they could be a group that effectively highlights the risks that a changing climate poses.

How to Build a Resilient Company

The Covid crisis has exposed widespread weaknesses in companies, countries, and society. The inability to deal with a major pandemic, something which has been widely predicted for many years demonstrates the short-term thinking that pervades much of our thinking and presents a major global risk.

Many firms in the hospitality industry, transportation and consumer firms have been dealt a harsh blow by the pandemic. Many firms have been put out of business or placed on government life support. Destined to become “zombie” companies propped up by tax payers until they become viable again.

Governments particularly those in Europe and North America have experienced heavy death tolls, large parts of their economy closed down and growth go into sharp reverse. Many Asian countries such as Vietnam, Taiwan and New Zealand were far more agile and have avoided the worst affects of the virus. The relatively recent experience of SARS helped build awareness and capacity in handling a pandemic.

Looming Crisis

The pandemic continues to rage across the world and although it may subside soon, many observers believe the world is becoming more unstable, chaotic and dangerous. The looming threat of climate change, the dangers of an economy increasingly based on new technology and the prospect of a multipolar world all point to an unpredictable future.

Faced by this new world the question for businesses and leaders is how can we prepare for this unpredictable future? The answer lies in building a resilient organisation. Resilience is usually defined as the ability to recover key infrastructure, absorb stress and thrive in adversity.

Many companies are focused on short term shareholder value whereas resiliency requires long term thinking. For example, nurturing and developing loyalty in staff over the long term may be expensive, but loyal staff are invaluable in a crisis.

Most organisations have well thought out strategic plans which are designed for reasonably predictable circumstances and when relationships are clear. Crisis can change all this and resilience means dealing with change and unpredictability.

Many companies take their customers, the countries they are based in for granted. Crisis can change all this and throw old assumptions out the window. Resilience needs to take into account unidentified risks. Firms are usually good at identifying and reducing exposure known risks. Resilience must consider “black swans” or unknown unknowns.

When crisis hits companies they must adapt and look for advantages in the new environment. For example, when Covid hit the restaurant industry LWC quickly shifted to supplying households instead. Many other firms have thrown their business model out the window and have embraced the pandemic world as best they can.

How Can Companies Develop Resilience

Redundancy builds buffers against shocks, at first sight this can cost money and appear inefficient. For example, having additional staff cover key positions or duplication in production. This appears wasteful until there are widespread absences. When staff particularly those who cannot be replicated easily start falling sick or leaving, then those “inefficiencies” make business sense.

Diversity of response: This involves developing an environment which encourages multiple ways of thinking and responding to crisis. Again this can appear inefficient and chaotic, with different views and no shared vision. But the result can be that better decisions can be made because more experience and viewpoints come into play.

Modularity: this means allowing parts of an organisation to fail without causing total collapse. The trade off is that the organisation as a whole may lack cohesion. Unless an organisation is already modular then shifting to this model is particularly difficult.

Precautionary principle or prudence: if something can go wrong it will go wrong. The response is widespread contingency planning and stress testing of relevant risks. Critical parts of the business should be tested through desktop scenario exercises and stress tests. Other risks should be identified by horizon scanning and early warning systems.

Adaptability is evolving through trial and error. This requires that processes and structures in resilient organisations are designed for flexibility and the willingness to learn through mistakes. This comes at the price of stability.  

This can be taken a step further by actively seeking to take advantage in adversity. Instead of just looking to mitigate risk the firm should seek to improve its position by adjusting to new realities. Using a crisis to its advantage, either by using it transform the company internally, or to take a position in a new world.

This could mean acting to take advantage of new markets. As the global Covid pandemic subsides much of life will return to normal, but much will change permanently. More widespread permanent remote working and therefore smaller office footprints, more home deliveries, fewer flights and many other facets of life and business will shift. The skill is identifying these changes and adapting to the new environment quickly or face extinction.

Embedding these principles while in alignment with the company’s goals and activities is critical. Having a deeper purpose than short term profit can help a company articulate resilience, particularly when resilience is at odds with short termism.

Embeddedness is the alignment of a company’s goals and activities with those of broader systems. It is critical to long-term success because companies are embedded in supply chains, business ecosystems, economies, societies, and natural ecosystems. Articulating a purpose — the way in which a corporation aims to serve important societal needs is a good way to ensure that the company does not find itself in opposition to society and inviting resistance, or reputational risk and sanctions.

Diversification or migration is a more obvious strategy: this means developing new markets, geographies, or business models. This is commonly done by companies to ensure they are not over dependent on any one area or product.

However, migration during a crisis is a much more difficult proposition. Deploying resources in the business requires business intelligence and foresight to spot opportunities and risks in advance. The company also needs the flexibility to reallocate resources at speed.

What are the Benefits of Resilience?

By recognising the idea and planning there is a better chance of spotting threats earlier. These plans will be useful when the company is put under stress during a crisis.

Resilience will allow the company to rebound when the crisis subsides. Having the agility and the ability to learn an adapt will mean the organisation will better able to thrive in the new reality. While many retail outlets will have been hit by Covid, some will divert resources to online and delivery which will outlive the crisis.

While a crisis may appear the time to revert to stability and familiar structures. There is a famous saying “Never let a good crisis go to waste”. A crisis can be the harbinger of change, transformation to a digital organization has been achieved by mass remote working rather than a strategic plan.

A resilient agile organisation will press this advantage by enjoying the efficiencies allowed by remote working, reducing their physical footprint to save money and allow hybrid working at home and the office to get the best out of their staff.

Resilient organisations should assume that change is the new default andallow for constant iterations and experiments. So for example making plans and policies than can be easily updated and have room to manoeuvre and avoid a major breakdown. Constant small shocks and incidents to an organisation make it fitter, less complacent provided that staff and management are alert more adaptable.