Globalisation drives emerging risks agenda – Belgium

“Sub-Sahara Africa is classed by the Organisation of Economic Cooperation and Development (OECD) as a growth area but Europe is classified as a non-growth region. It also faces two huge economic issues. One is the ongoing uncertainty of the Eurozone which could result in another short-term crisis as we have seen in Cyprus or the end of the euro altogether. The other risk is more long-term, the pension deficit in many European countries that has resulted from an ageing population,” said the former President of the federation and current scientific adviser. It is another area where the economic equilibrium, between those who currently draw on pensions and those who contribute to it, is being gradually eroded. Another critical risk that is developing is environmental—both in terms of water supply and also clean air, said Carl Leeman of Katoen Natie and IFRIMA, the international federation of risk management associations.hide“This is an area where Europe has made relative progress by insisting on strict environmental regulations. Meanwhile, in the industrial areas of China and Russia, environmental regulations are not impinging on industrial growth but are stretching the extent of pollution and the quality of breathable air to their limits,” he pointed out. The key, said Gaëtan LeFevre of CMI and President of Belrim, is in finding a balance between an acceptable level of industrial activity that generates enough economic growth without reducing the sustainability of the environment. In many ways, it is an ethical issue that can be related back to the labour market in developing countries and the social and environmental risks that were made all too evident following the recent factory disaster in Bangladesh in April. Aside from the human loss, there was also considerable reputational damage for the Western clothing retailers that had used the factory and the labour for the manufacture of their goods. The tragedy turned the media spotlight on the ethics of the manufacturing supply chain. Whether this critical attention on the use of manufacturing plants and factories in developing markets (and the cheap labour and poor working conditions that are commonly involved) may lead to a rise in standards or even a return to manufacturing in Europe, would depend on a change in consumer behaviour, said Mr Leeman. It would also need a recognition that a higher standard of ethics in manufacturing will have a cumulative effect on the price of goods. “Consumers have to realise that if there are jeans on sale in the high street for €7 there is no way that they have been produced in humane conditions,” he said. The realisation that higher ethical standards will have an impact on cost must also be understood by shareholders and senior management. For publicly traded companies, this may be an issue but ‘it is a completely different ball game’ for privately-owned companies, said Mr Leeman. He said that such companies are generally more prepared to take a long-term view of risk. And the bulk of Belgian companies are privately-owned. The ability to take a long-term view of risk is not helped by the short-term use of regulation by politicians that look no further than the next election and the prospect of re-election. This is especially problematic in the financial services industry which is feeling the brunt of post-crises regulation more than most, said Sabine Desantoine, Insurable Risk Manager at financial institution ING Belgium. “The problem is that more and more regulatory initiatives are being proposed and they have to be voted and passed before the next election. When you want to change something, normally you take time to consider all the direct and indirect consequences. But in the current environment, we do not have time to react to the new regulations and the impact. They can say they have done something about it but it is the banks and the risk managers that are left to manage the impact of this rushed legislation and regulatory changes,” said Ms Desantoine. The reputational and financial damage that has resulted from a property/casualty event like the Bangladesh factory collapse also highlights the interconnectivity of risk, another emerging area of risk that was highlighted by the panel. “We tend to have well-defined categories of risk but increasingly these categories are connected—banking, financial, IT, reputation,” said Ms Desantoine. The interconnectivity of risk is a central tenet of enterprise risk management, a concept which has long been evident in risk management. However this has not made risk any easier to manage by recent economic developments. “It has made life more complicated for risk managers because the risks are harder to map,” said Ms Sonia Cambier, Risk Manager with chemicals and plastics group Solvay. “It is also more difficult because of the impact. Reputation used to be seen as a separate risk but now it is something that can affect everything. The impact is felt across the organisation and not just one department,” she said. For larger organisations, this makes managing risk especially complex because of the sheer number of people involved, added Mr Leeman. “Additionally, it seems that in very large, publicly traded companies active in different countries, risk management has become limited to compliance management.” Rudi Casteels of project sponsor XL said that the increase in natural catastrophes and their broader impact as a result of the world being so interconnected is also an issue that will prompt companies to rethink their risk strategies. “Is there enough investment in catastrophe preparedness? This is a question I believe will be looked at more closely in the future,” he said.

Globalisation drives emerging risks agenda – Belgium

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