Enterprise Risk Management ERM and Related Strategies

ERM enables an organization to deal effectively with uncertainty and associated risk. ERM is a systematic approach for identifying and managing the business risks of an organization. ERM offers a proven method to align risk appetite with strategic goals, deploys resources more effectively, reduces operational surprises and losses, and improves risk response (PricewaterhouseCoopers, 2007).

ERM is the most important support to balancing approach to assessing products, services and business activities using the following criteria as indicators to essence of sustainability (The Dictionary of Sustainable Management, 2009):

(1) Financial criteria

• Economically sustainable

• Technologically feasible

• Operationally viable

(2) Environmental criteria

• Environmentally robust

• Generational sensitive

• Capable of continuous learning

(3) Social criteria

• Socially desirable

• Culturally acceptable

The business impacts of climate change may require companies to initiate adaptation strategies and risk management actions even for companies that produce relatively few greenhouse gas emissions and have little if any need to reduce such emissions. Some industries and companies will be more concerned with adaptation issues, others with mitigation. Adaptation involves taking action to minimize and respond to the effects of climate change on the business. These effects may be readily apparent or may take time to develop and may be cumulative. Mitigation refers to actions required to reduce greenhouse gas emissions, sooner or later (CICA, 2005).

Sustainability risks impact businesses, but also society as a whole. When we start considering the viability of the water we drink, the air we breathe, and the land upon which we live, we may be contemplating the ultimate risk management challenge. We need to manage risks that impact the planetary ecosystems, on which we all depend. ERM deals with risks emanating from the environmental and corporate social responsibility areas. A few examples illustrate the nature and scope of sustainability risks (Anderson, 2007):

• Increasing ocean temperatures as the result of global warming are producing stronger hurricanes and greater property damages.

• Island states are considering litigation against certain industries, like the oil industry, and countries, like the United States for producing global warming, which is threatening the existence as a society.

• Numerous companies, like Nike, ExxonMobil, Citigroup, Shell, Nestle, have suffered financial and reputation damages from boycotts against their operations, which harm the environment and/or workers and the public.

• Several corporations have paid sizeable settlements following suits brought by female employees alleging gender discrimination.

• As water sources are contaminated and depleted, many corporations face litigation for injuries and damages.

• Multinational corporations operating in the European Union face a myriad of environmental regulations, including the Kyoto Protocol, the Waste Electrical and Electronic Equipment Directive (WEEE), the Restriction of Hazardous Substances Directive (RoHS), and the Registration, Evaluation, and Authorization of Chemicals framework (REACH).

• At current deforestation rates, the Amazon Rainforest could be gone before the end of the century.

• A study in Nature reported that industrial-scale commercial ocean fishing has reduced the world's populations of large predatory fishes by 90% over the last 50 years.

• Directors and officers face penalties and litigation for failure to effectively manage sustainability risks.

Increasingly climate change can be expected to impact many strategic factors and key performance drivers such as availability of and access to resources, raw material and production costs, supply chain arrangements, and market demand for products. For companies with longer operating or investment cycles, it will be important to help investors understand the impact of structural changes in markets arising from climate change adaptation and mitigation issues (CICA 2005).

Nowadays, business management systems and risk management frameworks reshaped and improved as including climate change and global warming-based impacts. Risk management strategies categorized global warming into 2 dimensions, 6 aspects, and 28 strategies by Chen, Yu-Ling and colleagues as shown in Fig. 27.1 This adapted figure can be useful to understand relationship between global warming, ERM, and business management concept.

Dimensions

Aspects

Strategies

ENTERPRISE RISK MANAGEMENT (ERM)

Command risk information

1

Establish targets for reducing risks

2

Fully understand corporate risks

3

Efficiently manage corporate risks

4

Cooperate and communicate operating risks with other agencies

5

Use common risk language to discuss with environmental risks

6

Support and participate in related research plans

Have tools and technology of risk management

1

Fully understand and use tools to reduce risk

2

Promote rate of energy use by innovate and improve technology

3

Use and purchase renewable energy to save costs

4

Establish environmental risk management system

5

Insure related environmental insurance

Implement greenhouse gas inventory and reduction

1

Establish target to greenhouse gas reduction

2

Implement greenhouse gas inventory to provide valuable information from emission

3

Establish risk management standards by greenhouse gas inventory

4

Use greenhouse gas inventorial report to be information from manage risks and opportunities

5

Conform to related environmental laws and regulations

6

Implement voluntarily greenhouse gas reduction

CORPORATE SOCIAL RESPONSIBILITY

Communicate with stakeholders

1

Continued increase value for stakeholders in risk management strategies

2

Communicate operating risks with stakeholders

3

Explain operating risks to employees

4

Take responsibility for rights and interests to stakeholders

5

Increase knowledge and awareness for employees by risk train courses

Cooperate and integrate for corporate

1

Learn the different management strategies from other groups

2

Integrate related risk information to gain the optimum management effects

3

Participate international environmental organizations to increase corporate image

Corporate information disclose

1

Disclose related greenhouse gas reports

2

Promise and ensure to investors

3

According information include related greenhouse gas data

Fig. 27.1 Enterprise risk management strategies and strategy categorization (Chen et al. 2007).

Fig. 27.1 Enterprise risk management strategies and strategy categorization (Chen et al. 2007).

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