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15 Cards in this Set
- Front
- Back
Ocean Tomo’s 2010 Intangible Asset Market Value report
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Suggests that only 20% of an S&P 500 company’s market value can be explained by its physical and financial assets. This is down from 83% in 1975.
The remainder comprises intangible factors, such as intellectual capital, human capital, brand and reputation, and relationships with regulatory bodies, non-governmental organizations, customers, suppliers and other external stakeholders. |
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Strategic risks
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marketing position
changing consumer demand strategic investments stakeholder communications investor relations business customer expectations (Walmart) shareholder expectations - increasingly prescriptive in asking boards to mitigate risks tied to evolving regulations, shifting global weather patterns and heightened public awareness of climate change issues |
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Operational risks
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The physical impacts of increasingly violent weather are impacting operations, reducing performance and increasing insurance premiums
(Fukushima earthquake, Toyota lost 370,000 vehicles, Hurricane Sandy damages at $62B) Heat waves and droughts can pose longer-term risks and with rising population, deforestation and degradation, these are threatening the availability of natural resources — including water Sustainable supplier programs - assessing performance (environment, safety, labor) Life-cycle assessments of products Supply chain - opp to enhance efficiencies License to operate - legal restrictions, lost credibility |
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Compliance risks
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Includes health and safety, human rights and labor laws, anti-bribery and environmental risks. Environmental risks can include direct impacts (e.g., emissions trading cost exposures) and indirect impacts (e.g., energy price increases and accompanying reporting and compliance costs). Certain programs will require audit and verification activities, resulting in additional cost exposures
Examples: EPA “endangerment finding” that GHG threaten the public health and welfare of the American people, Conflict Minerals Cali Transparency in Supply Chains Act of 2010 Cali Global Warming Solutions Act of 2006 (AB 32) into effect January 2012 SEC Interpretive Guidance on Disclosure Related to Business or Legal Developments Regarding Climate Change, Jan 2010 France, Article 225 of Grenelle II, India, S. Africa, Denmark |
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Reporting risks
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Mounting pressure to be transparent
Sustainability data available to institutional investors through commercial information services such as Bloomberg (300k) and Thomson Reuters(400k) and to individual investors through websites such as fidelity.com The Consequences of Mandatory Corporate Sustainability Reporting - equity analysts have begun giving higher ratings to companies with exemplary CSR practices NASDAQ, Brazil and Singapore among others, have announced that they encourage companies listed on their exchanges to publish annual sustainability reports Johannesburg Stock Exchange requires listed companies to produce an integrated report Credibility of reporting is gaining in importance, with more than 50% of the sustainability reports globally receiving some form of independent third-party assurance IIRC & GRI |
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COSO ERM framework
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1. Internal environment
2. Objective setting 3. Event (Risk) Identification 4. Risk Assessment 5. Risk Response 6. Control Activities 7. Information & communication 8. Monitoring |
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COSO ERM - Internal Environment
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Although many organizations have an internalized set of assumptions that reflect the values and guidelines they use for their decision making, few have taken the step of defining their risk appetite
A basic scenario analysis can test the acceptability of various sustainability impacts to the organization Comparing stakeholder expectations to current sustainability strategies and exposures can help set the management tone by indicating the weighting applied to various considerations and potential impacts External scanning is essential to truly connect a company’s internal environment to the world in which it operates |
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COSO ERM Event (Risk) Identification
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To gain a comprehensive view of the potential, possible and likely sustainability threats and challenges to an organization’s objectives, organizations should bring together both sustainability subject matter experts as well as the operational and strategic business content experts.
Sustainability knowledge experts can identify and articulate interdependencies, unintended consequences and nonintuitive impacts stemming from social, environmental and economic considerations that often do not come to light in a traditional approach. |
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COSO ERM Risk Assessment
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Risk root cause and sensitivity analysis to understand the drivers and pathways of organizational risks
Changing nature of company value perceptions Sustainability provides an increased ability to further analyze risk by enabling a range of potential value impairment estimates tied to the changing perceptions of an organization (tracking reputational impacts linked to sustainability missteps/correlations and scenario modeling relative to stock impacts, top-line revenue impairments, market dynamics) Materiality - risk of stakeholder influence over consumer sentiment and ultimately brand value |
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COSO ERM - Risk Response
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Sustainability factors that form the core of an organization’s values can help frame what will or won’t serve as an acceptable risk response (i.e. protecting cultural history effecting production capacity, facility, etc)
Include when designing business cases or making investment decisions A well-designed set of leading questions can enable management to identify and address potentially overlooked linkages and unintended consequences. |
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COSO ERM - Control Activities
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Internal audit and other control monitoring functions within an organization (e.g., legal, compliance or safety) can also perform audits to evaluate the effectiveness of sustainability practices, communication protocols and reporting initiatives
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COSO ERM - Information & Communication
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Importance of communicating clearly and truthfully to avoid reputation risks
Benefits of internal processes and controls to help collect, store and analyze financial and non-financial key performance indicators (KPI) Obtaining real-time, quality data on such issues as GHG emissions, water use and supply chain activities can help organizations enhance decision making, while reducing risks and enhancing opportunities. |
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COSO ERM - Monitoring
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Balanced scorecards to keep track of performance of sustainability objectives
Using key risk indicators, organizations can plan, measure and monitor their sustainability risk management at each level of the organization. Management can then communicate this information using executive dashboards to senior executives and the board. Effectiveness of monitoring approaches lies in the timeliness, integrity and transparency of the results, as well as what is done with the results to manage sustainability initiatives and mitigate the corresponding risks. |
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Seven tips for raising sustainability awareness in the organization
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1. Get leadership involved
2. Engage stakeholders 3. Integrate sustainability into the corporate strategy from the start 4. Identify and then assess materiality of risks (Just because there isn’t a financial number attached to the risk doesn’t mean it’s not material to a company’s operation and financial performance) 5. Look for quick wins 6. Be open and transparent 7. Choose the right management tools |
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Competitive advantages of embedding sustainability into ERM program
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1. Alignment of sustainability risk appetite to the organization’s corporate strategy and the new world view of company value
2. Expanded visibility and insights relative to the complexity of today’s business environment 3. Stronger linkage of company values and non-financial impacts to the organization’s risk management program 4. Better ability to manage strategic and operational performance 5. Improved deployment of capital |