GARY RYNHART: Firms must be sustainable and resilient to thrive in today’s global markets

About 15 years ago the International Labour Organisation (ILO) developed a policy framework to support governments in promoting and developing “sustainable enterprises”. This framework sought to put in place enabling environments for enterprises to grow and create jobs by integrating the three components of sustainable development — social, economic and environmental. Rereading it now, I find the framework is probably more relevant today than in 2007 when it was developed.

At the company level, the concept of a sustainable enterprise is now widely accepted. Firms must be profit driven and competitive to survive, while living up to social and environmental expectations from society. In other words, firms must be responsible and do good while they are doing well financially. Firms not following this pathway risk consumer blowback, restricted access to supply chains and procurement opportunities, and barriers to finance. Increased legislation in these domains is in any case placing legal obligations on all firms.

The Covid-19 pandemic has demonstrated that the sustainability of firms must also be matched with resilience. Economic cycle shocks such as financial crises or credit defaults, and global or regional recessions, can cause raw material shortages, interrupt access to markets and drive fiscal and monetary instability or excessive inflation.

Catastrophic events such as natural disasters, changing weather patterns due to climate change, and pandemics often cause loss of lives and livelihoods and destroy productive assets.

Additionally, market disruption trends driven by technology innovation or globalisation directly disrupt economic sectors and businesses, especially the smaller, less adaptive ones.

Building resilience, along with increased efforts to make business operations more sustainable, can be summed up in the mantra of “build back better” or rather “build forward better”. Here in SA, the ILO is working with the Tourism Business Council of SA to strengthen the resilience of small companies, which make up the vast majority of firms in the sector. The council and its partner associations, such as the Southern Africa Tourism Services Association, are rolling out training for firms that will help them build customised resilience and contingency plans.

If this reaches enough firms nationwide it could be a competitive advantage for SA tourism. The project also incentivises smaller firms to mitigate their risk through collaboration and partnerships such as sharing of security costs, generator and fuel costs, to more formal arrangements with suppliers of critical supplies and human resources when a crisis hits, including through risk insurance based on a “business resilience strategy”. 

Efforts and responsibility at company level are key, but firms need to be supported by governments. The ILO has been working with McKinsey to develop a framework to help policymakers manage crisis-related shocks and build resilience. The measures are shaped around two pillars. First, crisis management — to mitigate and relieve small firms of stress brought on by sudden shocks and accelerate their recovery. Second, business resilience — to enhance the survivability of small firms before they face the next shock by helping them improve their risk management capacity and business adaptation capabilities.

The proposed crisis management measures are also quantified in terms of their frequency of use during the Covid-19 pandemic. This analysis, based on about 1,600 data points collected from the World Bank database of small and medium enterprise support measures in response to Covid-19, shows that most government interventions have focused on improving small firms’ financial stability and liquidity (about 70%), followed by supporting employment continuity and adaptation (about 25%).

Only about 5% of the reported measures addressed operational adaptation, and fewer than 1% sought to facilitate restructuring. The last measure is particularly important for less well-resourced countries as interventions that help small companies to adapt their operations, restructure or diversify can involve less cash resources and have a more sustainable mid- to long-term effect.

When it comes to how firms need to equip themselves to operate in markets, we are at an inflection point. Expectations of social and environmental good faith need to be met, but equally, contingency and resilience do as well. A positive social and environmental footprint, allied with a strong focus on a firm’s resilience and contingency planning, strengthens positioning within existing supply chains and is increasingly a differentiating factor in new business development.

• Rynhart is senior specialist in employer activities with the International Labour Organisation, based in SA.