Enterprise Risk Management (Preview)

Chapter 1 – Risk Management Awareness 9 impose carbon pricing systems to limit emissions. Under such systems, industrial polluters have to reduce their emissions, or need to purchase increasingly expensive permits. Companies that find innovative ways to reduce their emissions develop a competitive edge. However, governments must remain vigilant, as some companies may relocate to avoid carbon pricing. Solar and wind are becoming important sources of clean energy. Changes in consumer attitudes have prompted the automobile sector to offer hybrid and electric cars. The sector is also developing hydrogen fuel cell vehicles that create electricity by converting hydrogen and oxygen into water. These trends present great opportunities for organizations focused on research and development in these fields. Increased Accountability Organizations are subject to increased oversight and accountability via regulators and the general public. Many laws and regulations are in place, namely with respect to product safety, employment practices, employee safety and health, consumer protection, fair trade, competition, transportation safety, financial disclosures, taxation, environmental protection, etc. Regulators demand information, carry out inspections or audits, and impose sanctions if there is noncompliance. Some organizations contend that regulations are too onerous and impede their competitiveness with other organizations that operate in countries or jurisdictions that are less regulated. Governments must maintain a fine balance with meeting legitimate public policy objectives while creating favorable conditions for business. Changes in regulations are sometimes unpredictable (especially when crises occur), and sudden changes can have important implications on the private sector. Organizations are also subject to greater public scrutiny and criticism than ever before. Suppliers, customers, citizens and advocacy groups have the ability to make their complaints public through the Internet and social media. Organizations must be vigilant with protecting their reputation, by preventing incidents and responding to them effectively when they occur. Geopolitical Tensions Conflicts between nations and ideologies persist, often with dire consequences for citizens and organizations. Armed conflicts in the Middle East and the rise of groups associated with terrorism pose constant threats to world peace, security and stability. Military aggressions in Eastern Europe are a stark reminder of past conflicts between nations. The build-up of man-made islands by China in the South China Sea causes disputes over territorial waters and maritime navigation. Nuclear threats from North Korea and other regimes have the potential to damage world peace and stability. Members of the Eurozone (countries using the Euro as a common currency) and the European Union at large have ideological differences regarding public policies, and these differences affect business and consumer confidence. These tensions and conflicts create political and economic risks. Organizations that expand and invest internationally must remain alert at the possibility that situations may deteriorate. Global Risk Surveys Surveys are conducted annually by reputable firms to identify and describe the most significant risks perceived by senior executives and academics. These surveys help organizations determine whether some risks may have been overlooked or require greater attention than previously thought. They provide a reliable source of information for organizations to analyze their context, and identify or update specific risks that may affect organizational goals, strategies, objectives and operations. These surveys are particularly useful to senior executives and risk management professionals.