Navigating the Bumpy Road to Sustainable Success

Businesses all over the world are seeking how to reduce the risks of climate change, prevent further pandemics,gear up against a cyberattack, build a more equitable society, and still generate growth.

In the face of social expectations regarding the contribution of companies to the general welfare of society, companies can no longer afford to remain only in regulatory matters and numbers. The definition and execution of a company's ESG (Environmental, Social and Governance) strategy is becoming increasingly important on the agendas of Boards and Executive Committees.

The implementation of best practices in the definition of the business model, management and governance of the company is a key part of the functioning of any business group, in all sectors.The development of regulations and the growing number of recommendations, codes and principles on sustainability, both nationally and internationally, make corporate governance a lever for creating value for shareholders.

"Achieving sustainable growth raises challenges for companies, but inaction comes with a significant cost."

It is clear that the creation of more sustainable economies and systems pave the way in which a business makes its key decisions. Taking risk-informed decisions is an essential part of the profitable and responsible operation of any business group, no matter the sector.

The importance, concern and interest of companies in aligning their strategic objectives with stakeholders´ interests has translated into some companies giving a major boost to their ESG strategy in the area of "Corporate Governance", supporting the implementation of a general environment of control and comprehensive management of their risks.

Risk management is a path to achieve that key business decisions are made in an informed, responsible and timely manner, by whoever is appropriate to the implications of the Group.

This holistic vision of risk management, integrating environmental, social and corporate governance aspects, is building a market for sustainability risks.

Sacyr Group, the 7^th largest infrastructure concession company in the world, is a case study for having managed to move risk management from the periphery of strategic concern to the centre. This approach has contributed to the development of an organisational resilience model through the consolidation of their risk system with the rest of the company's management systems.

Sacyr has developed a comprehensive vision of risk since the creation of its risk management system in 2015, including socio-political, geopolitical, compliance, competition, cyber and reputational aspects, in addition to ESG.

Under the motto "Risk management is not about managing risks. It's about managing how people take decisions", the group has created an early warning system throughout the life cycle of a project. Its innovative approach takes project risk management beyond the traditional fields of action.

Sacyr´s risk management model was recently honoured at the European Risk Management Awards 2021 with "Risk Resilience Initiative of the Year". This award recognises the excellence of European companies in creating a resilient corporate culture and successfully executing their risk management strategy.

How much is this holistic approach to risk worth?Achieving sustainable growth raises challenges for companies, but inaction comes with a significant cost. Setting a comprehensive risk management strategy requires firms to consider a wide range of specific, but often interconnected factors that could negatively or positively affect portfolios and the overall success of the business.

Instead of trying to avoid loss altogether, the focus must be on empowering informed risk-taking – so your decision-makers can say “yes”.So don't focus on loss, focus on how better informed risk taking gives the organisation an advantage. The management of downside is part of that, but it's not what business leaders think of as their primary objectives.

Both risks and opportunities trigger firms from multiple sectors to develop a vision for sustainable business and invest in a plan to mitigate sustainability risks and capture market opportunity.Sacyr has become deeply involved in establishing a long-term value creation vision linked to sustainability market trends.

A holistic approach to risk is worthy according to sustainability rating agencies (Sustainalytics, Standard & Poor's, CDP and MSCI). These agencies not only rate companies on sustainability through the 3 ESG pillars, but also, they are creators of sustainability ratings that are replicated by index funds around the world. Sacyr ranked first at national level and the 5th best company in the world in the infrastructure sector and the first by capitalisation equal to or less than $2,000 M for the Sustainalitycs agency.

This agency highlights Sacyr's solid risk governance structure and an appropriate hierarchy of the risk control and management function within the company, independently from business lines. Operational positions at the forefront of risk control, as well as stress tests and sensitivity analyses of financial risks, climate change and water availability, amongst other risks.

In sectors such as infrastructure, banking, mining, oil and gas, power, utilities and basic resources, organisationsare urged to respond to sustainability risks and compliance requirements which have an increasing impact on a firm’s overall financial performance.

In summary, sustainability fuels risk management and will help companies to grow new markets. Managing risks inherent to the businessactivities and operations needs to cover the strategic, financial, compliance related matters, operational, social, environmental, geopolitical, technological, commercial, contractual, ethical and many other business priorities, especially as we continue to face the consequences of the COVID19 pandemic and there are other systemic risks on the horizon.

An effective risk management system must bring a unique perspective to the strategic dialog among the group and allow to put people in the centre to anticipate, prevent, act and report accordingly in the most practical way to enhance better risk-informed business decisions.