Environmental Risk Management in Companies Worldwide

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Many safety coordinators are responsible for their companies’ OHS and EHS programs. This arrangement makes sense because there’s a lot of overlap between safety and environmental compliance. So today we’re going to discuss a survey of CEOs worldwide on their approach to environmental risk management.

Economist Survey
The Intelligence Unit of the Economist conducted a survey of 320 executives from around the world to determine the extent to which environmental risk management has become part and parcel of modern business strategy.

The executives who participated in the survey came from North America, Europe, Asia, the Middle East, Africa and Latin America. Regardless of their actual titles, they all had responsibility for or influence over their company’s strategic decisions on risk management. They represented a wide range of industries, including:

  • Financial services;
  • Professional services;
  • Energy and natural resources;
  • Government/public sector;
  • IT and technology;
  • Manufacturing;
  • Construction and real estate;
  • Healthcare, pharmaceuticals and biotechnology;
  • Telecommunications;
  • Education;
  • Transportation, travel and tourism;
  • Agriculture and agribusiness;
  • Entertainment, media and publishing;
  • Consumer goods; and
  • Chemicals.

Key Findings
The survey responses lead to the following key findings:

Environmental risk management is frequently managed in an ad hoc fashion. Companies approach general risk management in a formal, coordinated way. But the same approach isn’t always used for environmental risk. For example, one third of participants said they manage environmental risks in an ad hoc manner. However, 31% did say they coordinate it as part of the overall risk management framework.

There’s no clear consensus about who should be responsible for environmental risk. Although there’s widespread agreement that a board-level executive should assume ultimate responsibility for some risks, there’s no consensus as to who should be responsible for environmental risk. In fact, 14% of participants said no one in their company had overall responsibility for environmental risk. And 17% leave it to regional directors, heads of business units or line managers.

Many companies conduct strategic activities without formally assessing environmental risk. According to the survey, a high proportion of companies don’t conduct a formal assessment of environmental risk when undertaking a wide range of strategic activities, such as acquiring other companies, selecting suppliers, developing new products and services and planning geographical expansions.

Key strength: compliance with environmental laws. Just over half of the participants said that they either successfully or very successfully complied with environmental laws. It’s interesting that what’s seen as a strength is the one aspect of environmental risk management that’s mandatory.

Key weakness: managing environmental risks associated with suppliers and partners. Participants identified their main weakness as managing the environmental risks associated with their suppliers and partners. They’re most successful at managing the environmental risks related to their supply chains when those risks are regulated or are ones for which the company will be seen to have clear responsibility if things go wrong.

Main benefit of environmental risk management: better reputation with customers and investors. Apparently, reputation is everything. Almost six in ten participants said that an enhanced reputation with customers as the key benefit of environmental risk management, with an improved reputation with investors as the second biggest benefit. (See the graph on page X for the other perceived benefits of effective environmental risk management.)

Climate change is an opportunity as well as a risk. Climate change may not be all bad. When asked to rate the significance of the opportunities and risk associated with climate change, 44% of participants saw the risks as significant but 49% saw the opportunities as significant.

Lack of certainty is the main obstacle to effective environmental risk management. When asked about the factors that stood in the way of effective environmental risk management, participants identified the lack of certainty in two areas as key:

  • Impact of environmental liabilities; and
  • Lack of international harmonization in environmental regulation.

Conclusions

The following conclusions can be drawn from the survey’s findings:

  • To be successful, companies should ensure that environmental risk is managed in a coordinated way and forms part of their overall risk management framework;
  • Executives should put in place clear lines of responsibility and ensure that a senior person has ultimate responsibility for managing environmental risk. Although it isn’t essential for the CEO to be in charge of environmental risk, there must be clear lines of accountability and appropriate channels through which problems can be communicated to senior management and addressed in the context of the company’s overall liability picture;
  • Environmental risk doesn’t stop at the company’s walls. Companies must consider the environmental risk not only within their own organization but also among those with whom they work. And this assessment shouldn’t stop once potential partners or suppliers have been evaluated; companies should monitor the environmental performance of selected partners and suppliers on an ongoing and regular basis; and
  • Environmental risks can be a source of opportunity. In the coming years, it’s almost certain that environmental risk will rise up the corporate agenda as concerns about climate change and the impact of business on the environment increases. But depending on the industry, companies may be able to develop products or services that offer better environmental performance than those of their competitors or that help address some of the risks that they’re now facing.

Source:Under the Spotlight: The Transition of environmental risk management,” Economist Intelligence Unit, May 2008