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Economic Environmental
Performance Performance

Economic Social Environmental
Risk Management Risk Management Risk Management

People and
Organisational Vision and Objectives

The organisational benefits of a SERM system
The sustainable management of risk can prove beneficial for those adopting a
proactive approach; it may be that there are also business opportunities. The
potential business benefits include the following:
Enhanced corporate reputation and brand value is seen as ˜extremely import-
ant™ or ˜very important™ by 91% of respondents in the Center for Corporate
Citizenship & Sustainability survey of 2006;
Improved recruitment and retention of talented staff is seen by 78% of survey
organisations as ˜very™ or ˜extremely important™;
Reduced risk is seen as ˜very™ or ˜extremely important™ to 64% of companies.
An improved risk assessment and management process and the correspond-
ing reduction in liabilities should improve reputation in the marketplace;
Part A “ Overview of Risk Management

Improved finances from: reduced insurance premiums; access to capital;
reduced fines; and fewer enforcement action costs;
Improved stakeholder relations through:
Development of productive business relationships with suppliers and con-
Enhancement of customer loyalty;
Obtaining a licence to operate in local communities “ positive community
relations, generating local support for operations;
Building employee trust “ increasing morale and productivity, retaining
and attracting talented staff and reduction in dispute levels;
Positive regulatory and legal relations with host and own governments;
Positive relationship with local and international NGOs; and
Positive media relations/coverage.
Development of innovative products, services and systems;
Enhanced responses to societal concerns, building infrastructure, contribut-
ing to long-term sustainability which in turn can lead to larger, stable markets
and continued availability of resources; and
Assistance in decision-making processes, for example in the handling of
ethical dilemmas.

The challenges facing the development of a SERM system
According to the findings of the Center for Corporate Citizenship & Sustainability
the major challenges facing sustainability programmes are:
The measurement of results (cited by 75% of the companies surveyed);
Their implementation while coping with limited financial and staffing
resources (58%); and
The aligning of sustainability with business objectives (57%).
Other challenges are the:
Difficulties in implementing ˜sustainability™ and CSR programmes;
The difficulties of integrating internal management systems and procedures
with sustainability/CSR programmes;
Lack of staff training and executive awareness of the risks and rewards from
sustainability issues. This is described by David J. Vidal, the Research Director
of the Global Corporate Citizenship programmes of the Conference Board, as:
a glass more than half full of market awareness and nearly half empty of product
response demonstrates that there is work to be done in bringing corporate citizenship,
sustainability, or ˜CSR™ programs to the forefront of top executives™ minds.

Balancing the risks and rewards; and
The trade-off between different areas of risk reduction prioritisation.
To demonstrate the last point, the two graphs below are from sectors which
have very different risk profiles. They both display where the greatest potential
for improvements as compared to the additional effort and resources applied to
reducing the risk.
Chapter 2 “ A Sustainable Enterprise Risk Management (SERM) system 27

Scope for Improvement by Risk Category
Residual Risk


0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Additional Risk Reduction Effort

The first graph is for a company in the construction sector and indicates
that there are proportionally more risk reduction gains from addressing health
and safety risks, than by addressing environmental ones. A well-managed
organisation would seek to reduce the risk of both simultaneously, but the pri-
ority and most reward is in addressing health and safety risks.
The diagram further indicates that the organisation can benefit from all risk
reduction efforts as their investment and return curves are elastic.
The same could not be said for the next sector graph where there are large
benefits to be gained from addressing health and safety issues (in this case
mostly from reducing product liabilities of a particularly harmful product), but
little additional risk reduction can be gained by additional efforts to reduce
environmental issues.

Scope for Improvement by Risk Category


Residual Risk





0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Additional Risk Reduction Effort
Part A “ Overview of Risk Management

This graph demonstrates that there are limits to the amount of risk that can
be removed from the systems, and when the risk issues curves become inelas-
tic the organisation could be argued to be at a sustainable level of risk.

Key web links and further reading
The following sites have been voted as the best four for information on
sustainable development by practitioners in a GlobeScan research report:
* WBCSD “ http://www.wbcsd.org/ The World Business Council for
Sustainable Development (WBCSD) brings together some 180 inter-
national companies in a shared commitment to sustainable development
through economic growth, ecological balance and social progress.
* IISD “ http://www.iisd.org/ The International Institute for Sustainable
Development contributes to sustainable development by advancing pol-
icy recommendations on international trade and investment, economic
policy, climate change, measurement and assessment, and natural
resources management.
* UN websites “ http://www.un.org/ for multilingual access or http://
www.un.org/esa/ for the main topics page in English. The United Nations
Environment Programme (UNEP) Finance Initiative has released a report:
Show Me the Money: Linking Environmental, Social and Governance
Issues to Company Value, which finds that environmental, social
and governance (ESG) issues are material and have a financial effect
upon shareholder value in both the short- and long-term time frames.
UNEP FI report is available from: www.unepfi.org/fileadmin/documents/
* WRI “ http://www.wri.org/ The World Resources Institute is an envir-
onmental think tank that goes beyond research to create practical ways
to protect the Earth and improve people™s lives.
Drivers and trends in sustainability risk
Drivers and trends in
3 sustainability risk

This chapter reviews some of the contemporary drivers of changes in the
risk environment, utilising three tools for analysing which drivers and
trends will have an effect upon your organisation:
* Tool 1: The Value Drivers of the organisation;
* Tool 2: An Environmental Scan, in a sustainable development format;
* Tool 3: A Stakeholder Analysis of drivers.

Opening remarks
This chapter considers in great detail the ˜Internal™ and ˜external™ trends and
drivers of sustainable risk management. The following assessment tools are
reviewed in the following sections:
Tool 1: The Value Drivers of the organisation: costs, revenue, taxes and
Tool 2: An Environmental Scan, the ˜external™ risk environment trends are
reviewed through a sustainable development template of economic, social
and environmental considerations; and
Tool 3: A Stakeholder Analysis of the drivers and trends in managing risk.
In brief the current trends are:
Risks and the pressures to address them are both increasing;
Reputation and intangible assets are increasingly more important than fixed
Stakeholder pressure is growing, with more investor, consumer and NGO
pressure upon organisations to change and face the challenges of the future
more effectively. The customer used to be ˜king™, now they are concerned
rulers. There are increases in legislation, standards and fines associated with
non-compliance with these types of sustainability issues; and
Chapter 3 “ Drivers and trends in sustainability risk management 31

Sustainable Success

External Economic
and Technological
(Tool 3) External Social,
And Ethical and
˜Environmental™ Political
Pressures and Drivers
Trends Scan
(Tool 2)

A SERM System and Improved Competitive Performance

Economic Social Environmental
Performance Performance Performance

Processes Economic Social Environmental
and people Risk Management Risk Management Risk Management

Organisational Vision and Objectives
and Plans


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