The Economist Intelligence Unit: Significant Improvements Needed in Environmental Risk Management

Last year, The Economist Intelligence Unit (EIU), the business research arm of the company that publishes The Economist magazine, published a survey about the concerns and trends for environmental risk management.  The survey, sponsored by ACE, KMPG, SAP and Towers Perrin, was sent to 320 executives globally, half of which represented companies with greater than US$500million in annual revenue.  All respondents had material involvement in risk management for their organizations.

The results of the survey provided a number of insights into perceptions of environmental matters within the context of overall corporate risk management.  A shortened list of the findings is reviewed below.

Three key findings were:

–       Only one-third of those surveyed include environmental within their overall risk management strategy.  The remaining two-thirds address environmental in an ad hoc fashion, outside of corporate risk management, or not at all.  EIU commented:

This piecemeal approach may enable companies to identify isolated problems, but without oversight it will be difficult for them to obtain an overall picture of the risks they face.

–       Three of the top four identified obstacles to effective environmental risk management illustrate this lack of an integrated approach and overall picture:

  • Lack of certainty about impact of environmental liabilities,
  • Cost of managing environmental risk, and
  • Difficulty establishing benchmarks of key performance indicators.

–       Forty percent of the respondents stated that the scale of their environmental liabilities had increased over the past three years, and a full 58% felt that the next three years would see more increases.  Similarly, 59% indicated the amount of time and money dedicated to environmental risk increased in the past three years and 75% anticipate increasing that over the next three years.

Taking these three points in context of each other, what is surprising is that companies anticipate investing more in environmental risk management even in the absence of

–       an internal integrated structure to manage the risk, and arguably the projected increase in attention/resources;

–       an understanding of how environmental risk impacts the company;

–       metrics for measuring effective risk reduction and the associated financial return on the current – and future – expenses.

Another interesting point may be seen as a sore spot for environmental and EHS professionals: the reputed growth in ISO 14001 and other environmental management systems (EMS), ostensibly integrating environmental management into business operations, appears not to have seen the holistic success envisioned.

Companies who see the need to increase environmental risk management efforts would be well served to first invest time in improving the connection between risk management and environmental management.  Those who rely on an adopted EMS may also benefit from reviewing the framework in the context of risk, metrics and ROI.

Read the survey.

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