Sustainable Enterprise Risk Management framework.
David Kaye: David Kaye is an author and lecturer on risk management and con-
tinuity subjects and guides a wide range of companies and public sector organ-
isations around the world.
David has spent much of his working life resident and with bottom-line
responsibility for financial services businesses in the United Kingdom, The
Netherlands, The Caribbean, Singapore and Malaysia. David later became a
Divisional Director within the multi-billion pound Multinational with respon-
sibility world-wide for operational risk and continuity planning.
He is the Institute of Risk Managements lead examiner on business conti-
nuity, author of the Chartered Insurance InstituteÔÇ™s textbook on Operational
Risk Management and in 2006 has co-authored the book A risk management
Approach to business Continuity; published by Rothstein.
David is a Fellow of the Chartered Insurance Institute, A Fellow of the Royal
Society of Arts, a Fellow of the Business Continuity Institute, and a Member of
the Institute of Risk Management.
Raj Patel: An analytical chemist specialising in residue chemistry and chemi-
cal food contaminants with an in-depth knowledge of the science and legisla-
tion in food safety (e.g. food microbiology, pesticides, veterinary drug residues,
natural toxicants, food authenticity, trace elements). Currently Research Fellow
and Research co-ordinator at the Centre for Chemical and Bioanalytical
Sciences, Royal Holloway, University of London. Current research focus is on
the use of novel analytical techniques (proteomics and metabolomics) to food
safety and authenticity issues, largely funded by the Food Standards Agency.
Vijay Sardana: Vijay Sardana is a well known food and agri trade expert with spe-
cialisation on food safety laws, with 15 years wide experience of working in cor-
porate and policy making environment in various parts of the world, undertaken
more than 100 projects, published more than 350 papers in various trade journal
and trained more than 35 000 people in the sector on various aspects of agri-food
trade. He is also the author of well known publication i.e. ÔÇťA Guide Book to
HACCP Implementation in Food IndustriesÔÇŁ. He is a Director of AchieversÔÇ™
Resources Agribusiness Knowledge Services, a well known organisation in
techno-legal services in India and Executive Director of Centre for International
Trade in Agriculture and Agro-based Industries (CITA), New Delhi.
Vikas Sharma: Vikas Sharma is an Advocate in India and a Solicitor in England
and Wales, holding an LL.M in International Commercial Law from Aberdeen
About the authors xix
Business School, Aberdeen, UK. His dissertation focused on corporate gover-
nance reforms introduced in the USA and UK after the collapse of Enron and
research into rules and regulations that would be preferable to emerging juris-
dictions in framing their policies as to corporate governance.
Cate Newnes-Smith: Cate Newnes-Smith helps organisations to become Great
Organisations using a range of facilitation, coaching and strategic planning
techniques. She has experience in a wide range of industries and size of organ-
isation, in both for profit and not for profit organisations.
Mike Dance: Mike Dance is a director of The UK Mercantile Contracts
Enforcement Agency Ltd., specialising in the recovery of marine claims, and a
consultant with Jackson Parton, Marine Solicitors, London.
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The aim of this book is to provide a practice-oriented overview of risk manage-
ment issues, with particular reference to approaches which may be adopted in
identifying and measuring risks, and, therefore, how action to address those
risks may be prioritised. As will become clear from the following chapters, a
cornerstone of this book is that risk management is a significant tool in enhan-
cing the overall value or performance of any given organisation.
In this book we explore some of the current risk issues along with the con-
cept of organisations creating a ÔÇ˜Sustainable Enterprise Risk ManagementÔÇ™ or
SERM system to encapsulate these risk areas with more traditional and main-
stream areas of risk management. We seek to incorporate examples of how these
risks are quantified and can have a real ÔÇ˜materialÔÇ™ financial impact on an organ-
isation. Therefore we include best practice and case studies of how these risks
are dealt with by organisations that are rising to the challenge to become more
sustainable, financially, socially and environmentally.
A SERM system is a sustainable version, or extension, of an Enterprise Risk
Management (ERM), Integrated Risk Management or even Interdisciplinary
Risk Management system. A SERM system should include elements of the ERM
and Operational Risk Management (ORM) systems. We include the elements
described in the Basel Committee on Banking Supervision:
Internal and external fraud (theft, robbery, hacking or phishing) (Chapter 7);
Employment practices and workplace safety (Chapters 13 and 15);
Clients, products and business practice (Chapters 9, 16 and 20);
Damage to physical assets (Chapter 8 and others); and
Business disruption and systems failures (Chapter 8).
As well as reviewing the largely economic risks issues above that are
discussed in Parts A and B the book examines new research on the social
(Part C) and environmental categories (Part D) of sustainability related risks
Business culture practice (Chapter 12);
Human rights inside and outside the workplace (Chapters 13 and 14);
Health and safety inside and outside the workplace (Chapters 15 and 16);
Environmental management risk (Chapter 17);
Emissions to air, land and water and resource efficiency (Chapter 18); and
Governance ÔÇ“ corruption, crime (Chapter 21).
What is at risk?
The pie chart below shows the 12.5% of market value at risk form these sustain-
ability issues (of the average organisation reviewed), broken down by main part
heading of economic, social and environmental issues.
Social & Ethical
What are the benefits?
It is known that the majority of big companies concerned with corporate
responsibility issues acknowledge that they lack an active strategy to develop
new business opportunities based on these concerns, according to research car-
ried out by the Center for Corporate Citizenship & Sustainability at Boston
The types of benefits that can be achieved if a SERM system is developed
Enhancing corporate reputation and brand;
Recruiting and retaining talent;
Reducing risk; and
Developing innovative products and services.
The business cases, risks and opportunities outlined will vary in magnitude
depending on the type of organisation you are. The issues we raise will affect
your competitiveness directly or indirectly.
We will move from strategic considerations to practical case studies for
inclusion in any operational risk management plans. Many of the issues are not
immediately apparent as business relevant issues, we have used models to
analyse ÔÇ˜actualÔÇ™ loss histories and ÔÇ˜materialityÔÇ™ issues which are quantified to
present the probabilities of these new risks impacting upon you. You can view
the average scores for organisations in your sector on the attached CD-Rom.
In the event of lack of support from corporate financial officers (CFOs)
regarding the business case for sustainability a three prong rationale has been
recommended by the author of The Triple Bottom Line, Andrew Savitz, and is
set out below. While the examples given refer to large organisations the drivers
are also pushing smaller organisations.
Handbook overview xxiii
Substantiate the business case for sustainability
Gary Pfeiffer, CFO at DuPont, described one of his roles as ÔÇ˜sweeping up
after the elephant paradeÔÇ™. His chief executive, Charles Holliday, has made
a mantra of sustainability, pushing the idea that DuPont should shift from
making petroleum to biotechnology-based products, for example.
Mr PfeifferÔÇ™s job is to apply a financial reality check to this and any other
visionary ideas about sustainability.
Sustainability is not philanthropy; if there is no profit payback, your
company should rethink its commitment. CFOs such as Mr Pfeiffer play an
important role in making sure their companiesÔÇ™ investments in sustain-
ability produce results.
Measure the results from sustainability initiatives in financial terms.
In his role as chairman and chief executive at PepsiCo, Steve Reinemund
has shown his commitment to diversity. But diversity is not just a public
relations exercise or merely an ethical choice: it brings competitive advan-
tages to PepsiCo in the creation of new products, penetration of growing
markets and access to the best employee talent. The company measures
the financial benefits of diversity and has pegged them at more than
Now PepsiCoÔÇ™s senior vice-president for finance, Matt McKenna, has
helped to develop a CapEx sustainability model whereby capital invest-
ments of more than $10 m are systematically screened and measured for
environmental, social and financial results. This powerful ÔÇ˜triple bottom
lineÔÇ™ analysis ensures every big project the company undertakes is sustain-
able as well as profitable.
Communicate the value of sustainability to shareholders.
The CFO can play an important role in educating investors about the ben-
efits of sustainability. Alan Schwartz, of Bear Stearns, the securities and
investment banking group, said at a conference on sustainability in
Washington in 2004 that companies should present sustainability goals
the same way Warren Buffett presents Berkshire HathawayÔÇ™s annual busi-
ness objectives: hereÔÇ™s what we are going to do, hereÔÇ™s how weÔÇ™ll measure
it and hereÔÇ™s how you can evaluate our performance this time next year.
The CFO is uniquely positioned to explain the logic of sustainability to
investors with this kind of straight talk.
Savitz, A. on FT.Com, 25 October 2006
The parts of the book include an overview part and the three main categories of
what are considered to be the risks relevant to sustainability, with the addition
of a case studies part to view how some of the ÔÇ˜hotÔÇ™ risk topics are being
Overview of Risk
Part C Sustainable
Social Risk Enterprise
Management Risk Management
Part A ÔÇ“ Overview of Risk Management
The earlier chapters cover:
The key issues and drivers of risk management;
Trends in risk management; and
The effects on organisational culture.
Part B ÔÇ“ Overview of the Economic Aspects of
There is an average of 2% of risk to market value from the risk issues we have
reviewed here. Others are discussed which will be quantified for future vol-
umes. We cover the key aspects of the emerging risks which include:
Business interruption and disaster planning risk with crisis management;
Stakeholder and reputation risk management; and
Business, marketing and new technology-related risk, in addition to the more
standard risks associated with business practice, accountancy and govern-
Handbook overview xxv
Economic and Gross (inherent) Risk management Net (residual) Risk
socio-economic risk risk factor (RMF) risk to value ranking
Use of corporate power 0.6% 1.3 0.4% 1st
Business practices 0.7% 1.4 0.5% 2nd
Marketing practices 0.6% 1.4 0.4% 3rd
New technology 0.5% 1.3 0.4% 4th
Economic crime, bribery 0.5% 1.4 0.3% 5th
Total 2.9% 1.36 2.0%