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The chart below shows the economic risk categories by (net) risk to market
value for the top 500 companies in the EU and US.

Economic Use of
Crime, Bribery Corporate
& Corruption, Power, 0.4%



Part C “ Overview of the Social Aspects of
Business Risks
Social risks are as varied as the communities and cultural groupings from
which they emanate. The average risk to market value is estimated at 5.1% of
market share for the risks highlighted below, mostly from health and safety of
staff and customer issues. Many mistakes are made by organisations that are far
removed from their marketplaces, physically or culturally or both, such as:
Fast food chains trying to sell beef burgers in countries where the cow is
sacred; or
The addition of alcohol to soft drinks popular with religious groups who
shun consumption of alcohol.
SERM reviews these types of risks as well as external issues such as product
safety, human rights and employment law.
Handbook overview

Social and ethical risk Gross Risk management Net (residual) Risk
(inherent) risk factor (RMF) risk to value ranking

Health “ historic liabilities 1.9% 1.5 1.2% 1st
Safety external (public) 1.6% 1.6 1.0% 2nd
Health internal (workforce) 1.5% 2.1 0.7% 3rd
Human rights/resources 1.2% 1.8 0.7% 4th
Safety internal (workforce) 1.1% 2.2 0.5% 5th
Health external (public) 0.6% 1.7 0.4% 6th
Community investment 0.7% 2.0 0.3% 7th
Human rights (external) 0.4% 1.4 0.3% 8th
Total 9.0% 1.8 5.1%

The chart below shows the total social and ethical risks broken down by cat-
egory by (net) risk to market value for the top 500 companies in the EU and US.

Human Rights
Health “ Historic
Liabilities, 1.2%
Health External
(public), 0.4%

Safety Internal
Safety External
(public), 1%
Health Internal
(internal), 0.7%

We also look closely at internal risks associated with the hindering of the
smooth running of operations. Health and safety in the workplace (Chapter 16)
is still a very active risk area with a raft of existing compliance issues and
emerging risks that affect sectors differently, such as:
DVT affecting air travellers and staff;
SIT (seated immobility thromboembolism) is the white collar office version;
Popcorn lung;
Sick building syndrome;
Mental health issues; and
Handbook overview xxvii

Experience demonstrates that the list is growing exponentially, as well as the costs
and claims for compensation, together with trends in favour of class actions.
The existing and newer risks associated with health and safety issues have
even meant that insurers are seeking governmental insurance as the estimated
costs associated with claims begin to spiral. In the UK in April 2005 a report from
the British Medical Journal (BMJ) (Henderson, M. et al., Vol. 330, 802“803) has
reported that stress-related mental health problems have now overtaken physical
ailments as the chief cause of long-term sickness in Britain. The UK is estimated
to lose 12.8 million working days a year due to stress-related issues alone. A new
risk management regime is obviously called for as depression and anxiety now
account for more benefit claims than the more traditional back pain issues. These
newer pressures account for an average of 29 days off work per individual
involved with an estimated cost to the UK economy and business of £6.9 billion.
Chapter 16 explores why what is seen by employers as yet more red tape, is
seen differently by the economists that advise governments. As their ˜Regulatory
Impact Assessments™ (RIAs) are confronted by such large costs to economies of
poor management-related incidents and their impacts, they regard the burden on
companies as justified. In their view it reduces the vast costs of work-related acci-
dents, ill health, pain, grief and suffering which results from people trying to earn
a living. In the UK the analysis for 2001“02 placed the annual impact at a range
from £20 billion to £31.8 billion, of which £3.9 to £7.8 billion in costs is borne by
the employer and £10.1 to £14.7 billion is borne by individuals.
The global picture is more extreme, for example the ILO estimated that in
2000 a total of 2 001 717 people were work-related fatalities, although of these
only 57 468 had been reported to the ILO (Global Estimates of Fatalities Caused
by Work Related Diseases and Occupational Accidents, 2002). Further details
are found at: http://www.ilo.org/public/english/protection/safework/accidis/

Part D “ Overview of the Environmental Aspects of
Business Risks
The term ˜sustainability™ often means a paradigm shift towards a greater under-
standing of things in the direction of natural processes, which are more durable in
their efficient use of resources and inputs and outputs from systems. There is a
review of how to reduce the 5.4% average risk to organisations from these issues.
In this part the book explores the potential for living within ecological lim-
its and reducing the negative environmental impacts of organisations™ activi-
ties, while at the same time enhancing the resilience to resource shortages of
the future, via energy and materials efficiency, and reducing potential over-
heads. The challenges we face as a species are immense with global warming
and climate change being recognised as the biggest risks to human society:
The Global Development and Environment Institute at Tufts University in
the US says that trillions of dollars of damage could be avoided by the end of
the century if resolute action is taken now to reduce global warming; and
Handbook overview

These findings are echoed by the ˜Stern™ report on the Review of the
Economics of Climate Change published at the end of October 2006. The
author, Sir Nicholas Stern, is the head of the UK government™s Economic
Service and is a former chief economist at the World Bank; he said, ˜We can
grow and be green™ and estimates that the costs of doing nothing are:
£3.68 trillion in damages, that™s £3 680 000 000 000 as the ˜do nothing™ sce-
nario means 5“20% of the global economy will be at risk;
Up to 200 million extra refugees;
Up to 40% of species lost; and
Water shortages for 1 in 6.
So our new business environment could well be one where there will be sea
level rises, melting glaciers, increased storm and drought severity. This means
increased market forces of taxation, more green power, etc. It was also
announced there will be a climate change bill in the UK. Some commentators
say the signs are visible across the United States, according to some experts,
who point to an increase in tornadoes, brushfires, hailstorms, hurricanes, and
There is large-scale pollution of land, sea and air and we can barely begin
to understand the consequences. For example, it is estimated that 5500 chil-
dren die each day from diseases linked to polluted food, air and water (WHO
quoted in State of the World, 2003).
A SERM system can demonstrate that being green is good business. The
rewards and opportunities from environmental management seem to be increas-
ing almost as rapidly as the risks. There are new markets emerging:

According to a report published in 2006 by the Institute of Grocery
Distribution, more that half of British shoppers care about the green creden-
tials of what they purchase. The report has argued that the market for ˜ethical
consumerism™ is now worth £25 billion a year; and
Shell Springboard (a consultancy) has noted that the challenge of tackling
climate change-induced damages could be worth £30 billion for British busi-
nesses over the next 10 years.
There are other benefits like improved fuel security, and massive energy effi-
ciency savings to make in an era of high demand for energy resources. The
macro-economic benefits can also be large as:

The European Environment Agency (EEA) estimates Europe could save $15.4
billion a year in air pollution-control costs by 2030 through ˜burning smaller
amounts of fossil fuels™.

As with other areas of risk, when dealing with environmental risk, the SERM
model considers:
The gross or inherent risk;
The risk management factor; and
The net or residual risk.
Handbook overview xxix

Environmental risk Gross Risk Net Risk
(inherent) management (residual) ranking
risk factor (RMF) risk to value

Environmental incident risk 1.8% 1.4 1.3% 1st
Environment “ historical liabilities 1.1% 1.4 0.8% 2nd
Air pollution “ from transport 0.8% 1.5 0.5% 3rd
Resource use “ waste generation 0.9% 1.7 0.5% 4th
Resource use “ raw materials 0.6% 1.4 0.4% 5th
Resource use “ energy 0.6% 1.6 0.4% 6th
Resource use “ land and natural 0.7% 1.7 0.4% 7th
Air pollution “ from production 0.6% 1.6 0.4% 8th
Air pollution “ peripheral pollution 0.5% 1.5 0.3% 9th
Resource use “ waste water 0.4% 1.5 0.2% 10th
Resource use “ water use 0.3% 1.5 0.2% 11th
Total 8.2% 1.6 5.4%

The chart below shows the environmental risk categories by (net) risk to mar-
ket value for the top 500 companies in the EU and US.

Resource Use “ Resource Use “
Waste Water Water Use, 0.2%
Air Pollution “ Pollution, 0.2%
Peripheral Pollution, Environmental
0.3% Incident Risk,
Air Pollution “ from
Production, 0.4%

Resource Use “
Land and Natural
Resources, 0.4%
Environment “
Historical Liabilities,
Resource Use “
Energy, 0.4%

Air Pollution “ from
Transport, 0.5%
Resource Use “
Raw Materials, Resource Use “
Waste Generation,
Handbook overview

Part E “ Case Studies of Business Risks
Whereas the book includes case studies throughout, with some emphasis on
key global risks facing the world today, such as climate change and food safety,
there is no doubt that the Enron catastrophe that included economic crime and


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