Driving corporate sustainability through risk management

Transcription

1 Aon Risk Solutions Global Risk Consulting Driving corporate sustainability through risk management Risk. Reinsurance. Human Resources.

2 Introduction A changing risk context Sustainability risks are increasingly important to the success of organisations, their products or services. These are scrutinised against rapidly changing standards and stakeholder expectations. New communication technology and trends such as social media, have dramatically increased the visibility of sustainability performance. Stakeholder views and concerns can now be communicated to large numbers of people in a short period of time. There is increasing awareness of sustainability issues amongst customers and other stakeholders. Moreover, sustainability risks such as climate change and resource scarcity are increasingly having an impact on the operational efficiency of organisations and their supply chains. As such, it is essential that the response of organisations to sustainability is grounded in robust analysis, delivers tangible results which can withstand public scrutiny. In this risk reality, sustainability risks can impact on an organisation s licence to operate, affect its reputation and brand value, cause business interruption, disrupt supply chains, impact on operating costs, and affect an organisation s ability to attract and retain employees and partners. A proactive approach to sustainability risk can minimise loss, improve business performance and strengthen brand and reputation.

3 Changing needs of risk management functions Management functions (including insurance) are increasingly looking to better understand the sustainability risks associated with a company s operations and products, and the impacts these can have. This should inform the development of appropriate risk management strategies, integrated with the overall risk management programme adopted by the organisation. This will provide management with a more complete and integrated picture of risks across the organisation. Moreover, it will ensure that there is a common understanding of risk across the organisation, translating different views of risk into a single commonly understood language. Sustainability risk topics* Practices and Products Bribery and corruption Business ethics Political donations Product safety Directors pay Management of suppliers Marketing practices Environment Energy use Climate change Biodiversity Emissions Natural resources People Working conditions Diversity Labour relations Human rights Recruitment and retention Competence development Communities Local sourcing Community impact Natural hazards response Cultural and civil unrest Data security and privacy * Example of categorisation of generic risk topics Risk. Reinsurance. Human Resources. 3

4 Microinsurance Contribute to the sustainable development of the countries in which you operate Microinsurance helps protect the most vulnerable against external shocks, hence supporting society at large as well as your business. Microinsurance is provided by a variety of different entities and covers poor households that have been largely excluded from coverage by traditional insurance providers. It is increasingly being recognised as an effective mechanism in dealing with the risks faced by the low-income population. Besides loss mitigation, microinsurance also helps provide or support loss prevention and health / hygiene education to a part of the world s population that has typically no access to it. How can Aon empower organisations to implement microinsurance? Support across the microinsurance value chain, such as identification of opportunities, partner selection, product development and actuarial services Expertise in relevant areas such as agricultural / weather risks and healthcare to create innovative products A presence in developing markets around the globe Access to risk takers and fronting partners Claims management capabilities 4 Driving corporate sustainability through risk management

5 Integration of microinsurance in CSR activities to support supply chain risk management Supply chain Supplies Corporate Customers Protection of the customer base Microinsurance protects the livelihood of the low-income segment; this way, corporates stabilise their customer base while differentiating from competitors CSR Scope Reducing supply chain vulnerability With microinsurance, corporates help protect their small-scale suppliers against disruptions and strengthen their supplier network Stabilisation of the supply chain Corporates have an inherent interest to ensure a stable supply chain Small scale suppliers without insurance protection may expose corporates to disruptions in the supply chain Corporates may thus have an interest in supporting suppliers to protect themselves This is typically the case with suppliers in the agricultural sector in respect of systemic weather risks Supply chain stability Strengthening of relationship with the supplier network Corporate social responsibility Commercial profitability of microinsurance on a stand alone basis is unlikely and is not the principal motivation International corporates increasingly operate schemes to voluntarily contribute to the sustainable development of the economy, ecology and society in which they operate Microinsurance offers the opportunity to foster the bottom of the pyramid by protecting the poor and their assets from negative external shocks (e.g. natural disasters), helping households avoid poverty traps helping free up household capital for investment in small enterprise Customer base External events such as natural disasters may infringe economic means significantly particularly in low income areas Corporates selling to customers in the low income segment may find their customer base significantly reduced Providing (access to) microinsurance may thus benefit a corporate two-fold: Protect their customer base, Differentiation element from competitors Customer stability Strengthening of customer relationships Risk. Reinsurance. Human Resources. 5

6 Linking sustainability to risk management The Global Reporting Initiative (GRI) aims to provide a standardised reporting framework for private and public organisations sustainability disclosure. It is the most accepted reporting format worldwide. Globally, more than 5,200 organisations now use the GRI framework. The GRI guidelines provide a detailed index of information to be disclosed on various topics relating to environmental, social or labour practices. Companies use this index as a basis and reference for their annual sustainability report. The GRI s comprehensive reporting encourages companies to significantly improve and monitor their environmental and social performance. The risk management function at large corporates, is typically responsible to support or coordinate risk reduction measures. Many of these measures can have a direct impact on areas reported in the GRI. As the primary focus of the measures is typically on reducing the cost of risk, rather than on promoting sustainability around environmental, social or labour practices, the collateral benefit on the latter is often disregarded. This results in: incomplete GRI reporting of corporate efforts undertaken missed opportunities of internal promotion of the risk management function lack of coordination of central funding Standardised reporting helps: Assess a company s performance based on comparative data and transparency Companies to manage, measure and improve performance 6 Driving corporate sustainability through risk management

7 Mapping GRI s disclosure categories to insurance / risk management activity GRI core indicators Economic performance Environment Labour practices Human rights Society Product responsibility Classical insurance risks targeted by risk management Liability Property Motor Transportation Risk. Reinsurance. Human Resources. 7

8 Market solutions for sustainability risks Sustainable supply chain study The solution should include an identification and mapping of the sustainability of the supply chain, outline areas of potential loss, potential recovery options after a loss or indeed areas of prevention. The sustainable supply chain study will show areas of exposure from the supply of finished goods from the manufacturer into the firm s distribution network and onto stores for sale to the end customer. A thorough evaluation on the current outlook of ethical values and sustainable processes from within the supply chain will enable the company in question to: Have a clear understanding of critical business activities and vulnerabilities which may be affected by a nonsustainable supply chain event Quantify potential exposures through any sustainability related disruption Develop remedies and solutions for exposures which could cause supply chain related issues leading to problems to any business continuity management plan Focus on sustainability risk and opportunities Business objectives Organisation Project Supply chain Product/service Risk identification Risk monitoring and reporting Sustainability Risk assessment Risk control Terminate Treat Transfer insurable risk Tolerate Risk and opportunities Managing material risks and opportunities Address stakeholders expectations / understanding new risks 8 Driving corporate sustainability through risk management

9 Captive and risk finance solutions A captive can assist in a non-traditional way especially with regard to the stabilisation of the supply chain through insurance. Corporates thus may have an interest in supporting suppliers to protect themselves. This can typically be seen with regard to insuring small suppliers against weather related risks. Though commercial profitability is an unlikely scenario microinsurance offers the opportunity to foster the bottom of the pyramid by protecting the poor and their assets, helping households avoid poverty and helping free up household capital allowing investment in small scale enterprise. Such assistance can strengthen stakeholder relationships or provide the key differentiator in competitor choice. Areas of insurance where the captive can asist: Health Property Life Agriculture Risk control Looking at sustainability through a lens of risk control takes a granular approach to adopting sustainability. The incorporation of risk management into your sustainability programme will give you options in four areas in particular: Employees Stakeholders Profitability By examining these four key areas a company can achieve risk resilience. This granular approach to risk awareness and control will help to ensure that a sustainable business is enforced for the future through the areas of prevention, mitigation and loss resolution. Depending on the level of detail in the sustainable supply chain study the company will be able to see areas identified for improvement. Business Recovery Risk. Reinsurance. Human Resources. 9

10 Conclusion Empowering clients to manage sustainability risks Aon has helped organisations across a wide variety of sectors understand their risk profile and the potential impact of sustainability on their business objectives. This has enabled them to consider current and emerging sustainability risks and make suitable provisions in their risk management programmes. Our risk management services can cover the organisation as a whole, specific departments or activities, supply chains, products or projects. Similarly we can consider all sustainability risks and opportunities, or focus on specific sustainability risk topics (e.g. climate change). As part of our risk assessments, we identify key risks, assess their relative significance and prioritise them. As part of the assessment, we review the strategies and controls in place for the most significant risks, commenting on their adequacy and alignment with leading practice. Our assessment of risks is based on the latest scientific thinking on sustainability, takes into account the specific policy and business context in the relevant sectors. Moreover, it draws on both robust predictions regarding the evolution of sustainability conditions and historic data on sustainability-related events and their impact on organisations. 10 Driving corporate sustainability through risk management

11 Contacts David Crofts Grant Foster Noel McNulty Lukas Niedermann

12 About Aon Aon plc (NYSE:AON) is the leading global provider of risk management, insurance and reinsurance brokerage, and human resources solutions and outsourcing services. Through its more than 66,000 colleagues worldwide, Aon unites to empower results for clients in over 120 countries via innovative and effective risk and people solutions and through industry-leading global resources and technical expertise. Aon has been named repeatedly as the world s best broker, best insurance intermediary, best reinsurance intermediary, best captives manager, and best employee benefits consulting firm by multiple industry sources. Visit aon.com for more information on Aon and aon.com/ manchesterunited to learn about Aon s global partnership with Manchester United. Aon UK Limited Registered Office: 8 Devonshire Square, London, EC2M 4PL Aon UK Limited All rights reserved. The information contained herein and the statements expressed are of a general nature and are not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information and use sources we consider reliable, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. Aon UK Limited is authorised and regulated by the Financial Conduct Authority. FP.AGRC.8.TR Risk. Reinsurance. Human Resources.