The risk manager’s role in saving the planet

The average European risk manager may be excused for thinking that the call from Brigitte Bouquot, president of French risk management association AMRAE, for risk managers to play their part in the creation of a new social contract between politicians, business leaders and society to help tackles the world’s big problems, is overstepping the line somewhat. But we are not so sure and believe Ms Bouquot is on the right track.

Risk and insurance managers obviously have an important role to play in helping guide their organisations down a more sensible and sustainable route for the benefit of all stakeholders – investors, employees and customers.

By helping to make sure that Europe’s leading companies follow more risk-based strategies, backed up by adequate insurance coverage to help deal with the odd crisis, they are already helping reduce volatility and make the world a safer and more predictable place.

The recent trend of risk managers becoming increasingly involved in corporate and social responsibility to try and make companies more accountable, means that they are playing an even broader role than in the past.

As we are all aware, reputational risk has become absolutely central to the success or otherwise of any organisation. Any CEO that takes this seriously needs to take the manner in which this risk is managed seriously too.

The excellent work carried out by pressure groups to expose those companies and nation states that are failing to live up to their fine-sounding words on sustainability in policy documents and annual reports, is playing an increasingly important role by helping shove companies and governments in the right direction.

The Unfriend Coal campaign, backed by a group of NGOs worldwide and designed to stop insurance companies underwriting existing and new coal projects, is proof of how effective such action can be.

Since its launch, some 19 insurance companies, including four big names from the US, have pledged to stop or limit their coverage of new coal projects because they want to be seen as ethical and responsible organisations, and are often scared of being singled out as the baddie that keeps on investing in global warming.

The Lloyd’s and AIG are singled out as the naughty markets still not playing the game on coal.

Lloyd’s built its reputation on its ability and willingness to take on risks that the rest of the market would not touch and, according to Unfriend Coal, its underwriters are stepping into the coal market to offer capacity that others are now cutting. Lloyd’s central needs to take a close look at this because, as we all know, reputations can take hundreds of years to build and moments to lose.

AIG CEO Brian Duperreault reportedly said during a panel debate at the World Economic Forum in Davos that AIG will continue to offer insurance for the coal industry.

When questioned by Financial Times editor Gillian Tett, Mr Duperreault called a withdrawal from the coal sector “simplistic”, arguing that coal is “being taken out of the ground because people need it”. He reportedly added that AIG needs to work with clients that are “looking to transition their companies away from it, whether they’re the ones who produce or use it”.

As Unfriend Coal said on its website (www.unfriendcoal.com), AIG can expect to come under increased pressure this year for its stance. The fact that AIG and its rivals will be paying out more and more claims directly linked to global warming and climate change – as clearly shown by the Australian bushfires – may help the company change its mind.

The decisions by the world’s biggest investment fund, BlackRock, to hold companies more accountable for climate change risk management and direct investment to more sustainable companies, will surely add weight to the argument.”

Ms Bouquot did not comment on the coal campaign. But her far-reaching words about the need for a new social contract and alliance between business and the body politic to ensure more sustainable practices makes a lot of sense. And risk managers clearly have a role to play.

This is highlighted by a move from the Institute of Risk Management to form a new Climate Change Special Interest Group for members, to help them understand the risks associated with climate change.

Arguably, the fundamental role of the risk manager is to help colleagues and bosses see the bigger picture. When the sales team come up with a brilliant new money-making plan that may help save the CEO’s bacon, the risk manager needs to analyse the plan carefully and point out the inevitable, and often unseen, costs attached. This often makes the risk manager the unpopular person in the room and can, of course, lead to their exclusion from important early meetings when big decisions are made.

It is therefore the risk manager’s job to explain to colleagues and bosses that they are not there just to point out the problems, but positively help with constructive advice to prevent what looks like a good idea at the outset turning into a long-term headache.

For this reason, it would be a good idea for AMRAE and its fellow Ferma members to focus a significant portion of their investment this year on helping risk managers deliver on this crucial part of their job. The world could depend on it.