Authored by Dipankar Gosh, Partner & Leader, Sustainability & ESG, BDO India
The BDO Global Risk Landscape 2024 appropriately captures the emerging approach to risk that embraces opportunities in disruption and transforms risk into a competitive advantage. Since Nassim Nicholas Taleb introduced the concept of ANTIFRAGILITY in his 2012 book "Antifragile: Things That Gain from Disorder", the admiration of the concept has only continued to grow.
What does this mean in the context of Sustainability and ESG?
Unlike ‘resilience’ that refers to the ability to withstand shocks and disturbances while maintaining essential form or functions, an ‘antifragile’ system not only withstands shocks but actually benefits and improves from them.
NATURE: Resilient species in an ecosystem can endure climatic adversities and recover from disturbances such as wildfires and storms without significant population declines. In contrast, antifragility is demonstrated by a forest ecosystem that benefits from periodic fires, which clear out undergrowth, enrich the soil with nutrients, and stimulate the growth of certain plant species, thus making the forest more robust and better equipped to prevent future fires, ultimately helping biodiversity to flourish.
URBAN INFRASTRUCTURE: Flood-resistant buildings and green city infrastructure that are capable of withstanding extreme weather events like hurricanes or floods without catastrophic failure are prime examples of resilience. On the other hand, an antifragile urban sustainability initiative continues to improve from such disruptions. For instance, cities that invest in renewable energy sources like solar and wind not only reduce their carbon footprint but also improve their energy security. Price fluctuations and potential future restrictions on fossil fuels drive these initiatives to enhance their contributions towards future-proofing the environment.
CLIMATE CHANGE: Resilient strategies focus on mitigating and recovering from climate impacts. Antifragile approaches, however, leverage such challenges to foster innovation and sustainability. Antifragile climate planning involves integrating nature-based solutions like afforestation and the development of green corridors, which not only enhance biodiversity and air quality but also help ecosystems progressively adapt to and thrive in a changing climate, ensuring long-term adaptation and growth.
ESG IN BUSINESS: Antifragile ESG practices mark a paradigm shift in sustainable business strategies, emphasising resilience, innovation, and long-term value creation, in addition to the focus on mitigating risks associated with ESG issues. This takes sustainability efforts a step further by integrating resilience-building practices into core business strategies. Sustainable investing is evolving; rather than selecting companies that meet predefined sustainability metrics, the antifragile approach seeks out companies and practices that not only comply with these standards but also benefit and grow stronger from challenges and disruptions. Although quantifying antifragility across ESG criteria can be complex, as the concept matures, we expect newer metrics to be adopted in reporting frameworks that better capture antifragility and long-term value creation.
The bottom line
As global awareness and expectations around sustainability continue to rise, adopting antifragile ESG practices positions businesses to thrive in a rapidly evolving marketplace. Being a forward-looking approach that aligns business resilience with sustainable development, antifragility is poised to pave the way for a more robust and adaptable global economy