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CORPORATE RISK
Mapping the future
IS RISK MANAGEMENT
READY FOR
SUSTAINABILITY?
The economic crisis showed that large, unexpected disruptions do happen – and most firms
weren’t prepared, despite risk management procedures. No company in the world is ready for
the threats and opportunities that sustainability will bring in the next decade, says David Bent
L
ast year I was speaking to a senior ...and it is failing again in the that sustainability will bring over the next
accountant at a major company about sustainability crisis decade. But some are beginning.
the financial crisis. He said something Well, exactly the same dynamic is being
truly startling: his company had struggled played out right now on a host of sustain- Putting sustainability into strategy
to roll over its debt in the corporate bond ability issues. Global society is acting as and risk management
markets, and they had nearly gone under though tomorrow will be like today. Take PepsiCo, the global food and bever-
as a result. Fortunately they had found the We are so used to a stable climate that age giant. In 2008 it wanted to identify the
funding in time, but it did prompt this we think it can go on for ever – even business risks and opportunities of sustain-
question from the finance director: “why though the science is categorically saying ability, and what it needed to do now to
wasn’t that on my risk register?” that disruptive change will happen with ensure it is successful in decades to come.
business as usual. Bodies such as the Met With help from Forum for the Future, the
Risk management failed in the Office and the Tyndall Centre say that we company developed several plausible ver-
financial crisis... need global carbon emissions to peak in sions of 2030 with inputs from hundreds
It is obvious that risk management failed in the next ten years – or maybe less – if we of executives across the world. Senior
many financial institutions. Sometimes are to have a path to a safe concentration executives used these global scenarios to
people failed to spot risks in their business of greenhouse gases. We are used to pover- identify and prioritise risks and opportuni-
model (for instance, Northern Rock). ty in developing nations, and in our own ties, which were used in different ways.
Sometimes people failed to see the sys- countries too. We are so used to food secu- The corporate strategy team put the top
temic risk of a lot of companies having the rity that we act as if it is inevitable. five risks into their annual planning cycle.
same business model (both financial regu- The UN convened hundreds of scientists Each strategic business unit was required
lators and the big US investment banks). to assess the natural world in the to evaluate how exposed it was to each
Sometimes people would spot the risks, Millennium Ecosystem Assessment. Its risk, and to create a plan to mitigate it.
but a combination of culture and strong conclusion: “Human activity is putting Outside the annual planning cycle,
personalities ignores the risks (Lehman such a strain on the natural functions of the PepsiCo is building centres of excellence
Brothers). And, as my conversation above Earth that the ability of the planet’s ecosys- that create deep capability and learning on
shows, there was a failure of risk manage- tems can no longer be taken for granted.” particular risks. For instance, there is a
ment in many companies, too. So, we have been living beyond our new team that focuses on sustainable agri-
People had assumed that tomorrow will means in another way. This is the decade culture, so it can mitigate the risks that cli-
look a lot like today, only more so. Back in when it will come to a messy end. The mate and water crises pose to its supply
early 2008 we were so used to years of World Business Council for Sustainable chains. PepsiCo has applied the identified
high growth and low inflation that we Development’s recent Vision 2050 report opportunities to its long-term research and
thought it would continue for ever. Now calls the coming decade the “turbulent development plans, as well as to other
we know that we were creating asset bub- teens” with good reason. internal innovation methods.
bles and toxic debts that were just not sus- In my view, corporate risk management In addition, the whole process of creat-
tainable. We were living beyond our is failing again. Few companies have a ing and using scenarios means there are
means, and it was bound to come to a good handle on either the particular sus- hundreds of PepsiCo executives who have
messy end. Companies and governments tainability risks of their business model, or a greater appreciation of how tomorrow
were either blind to the risks or were pre- on the wider systemic risks these issues will not be like today. The scenarios have
pared to turn a blind eye for the sake of present. I believe that no company is ready been used in executive development pro-
short-term success. for the disruptions – and opportunities – grammes in Latin America.
4 April 2010 ❘ SB FutureProof
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