Companies must accelerate transition to strategic risk management in face of polycrisis, says Ferma

Ferma has told Commercial Risk that while the upward direction of travel is clear, there remains a way to go before risk management becomes a fully integrated part of strategic decision making and companies can extract the function’s maximum value. Ferma CEO Typhaine Beaupérin said that despite the growing prominence of risk managers, not least as the polycrisis mounts, it is important to recognise that the transition to strategic risk management is still evolving and the profession has not yet scaled the peak. “There is no doubt that the growing status of the risk manager within the organisational hierarchy has expanded the role far beyond a pure compliance function. Today’s risk practitioner is increasingly being integrated into every aspect of the organisational structure, from operational activities to strategic planning, able to support a much broader range of business objectives,” she said. “However, while the direction of travel for the risk management profession is clear, there is still some distance to be travelled if risk managers are to become a fully integrated component of strategic decision making within organisations,” continued Ferma’s CEO. She added there is still “much work that needs to be done” to ensure organisations can adapt their business models to “effectively address the unique and evolving” dynamics of a world on the brink of polycrisis and “position the risk manager as a central component of the strategic decision-making process that supports that adaptation”. Beaupérin said that the federation’s recent ERM Risk Maturity Study, produced in conjunction with Marsh, showed, for example, that while risk management practitioners are far advanced in terms of internal risk reporting practices and risk management processes at operational level, there are still “strides that need to be made” on both risk prioritisation and quantification. “Effective risk quantification and prioritisation capabilities are central to enabling companies to evaluate the risk environment accurately and make business-critical decisions in a timely manner. This is an area where more focus is needed to ensure the risk manager can play a much more prominent and productive role in facilitating the company’s overall business ambitions,” said Beaupérin. The good news is that there are areas that clearly show growing risk management involvement in strategic risks, including cyber and ESG. “If we consider one of most organisations’ key strategic risks – cyber – here we have seen the development of much more effective, frequent and consistent interaction between the ERM and IT and information security functions based on a clear mandate. This has enabled the establishment of strong and stable relationships between these teams and in turn helped create more cyber-resilient organisations,” said Ferma’s CEO. “There is also clear evidence of the growing influence of risk management in the context of ESG, with increasing interaction between the ERM and CSR/sustainability functions. While this is not at the same level of maturity that we see on the cyber front, factors such as increasing regulatory pressure are certainly acting as a catalyst,” she added. And it is important to recognise that the transition to strategic risk management is set to accelerate. “As Ferma’s European Risk Manager Report 2022 revealed, 40% of risk managers were involved in defining corporate strategy – a figure we fully expect to increase moving forward,” she said. Beaupérin went on to say that companies and risk managers are coming under “huge strain on a multitude of risk fronts” in the polycrisis, ranging from the deteriorating global outlook and potentially irreversible environmental changes, to growing polarisation, evolving technological threats and expanding geopolitical tensions. There is “no doubt” that the scope of the risk environment is rapidly expanding and becoming increasingly interconnected, she added. But she believes organisations can get ahead of the risk curve by leaning on risk managers to help plan and collaborate at strategic level. Risk professionals need to help put in place comprehensive plans for priority risks that can reduce their impact, while also facilitating potential restructuring to become more resilient, she added. “The key disciplines of risk management – the ability to monitor the risk landscape continuously, to identify risks in advance across the entire value chain, to quantify the potential exposures, and to prioritise risk mitigation and management activities – are paramount to the ability of organisations to build the level of resilience required to withstand this extremely pressurised environment,” said Beaupérin.

Companies must accelerate transition to strategic risk management in face of polycrisis, says Ferma

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