Risk management
With prices rising in forecourts, customers have taken to stockpiling to balance against rises.
Meeting the energy challenge Just hours into her short-lived premiership, Prime Minister Liz Truss set out a raft of measures intended to help British businesses navigate the coming months. For the first time, firms were offered guarantees on energy costs – at least on the amount they would pay per kilowatt hour. Regardless of the guarantee, though, it didn’t address the issue of energy supply: potential black or, more likely, brownouts, the reduction of electricity to certain areas or industries to counter the risk of a wider break in supply. The situation isn’t any better across Europe, where governments are pumping hundreds of billions of euros to try to avert all-out disaster. In September, the Brussels-based think-tank Bruegel estimated that as much as €280bn had been allocated to lessen the impact energy bills will have on customers in the EU, and to support the continent as it faces a winter of energy shortages. Policies that ration energy have also been floated across Europe’s largest economies, while business owners are already speaking of the devastating impact prices are having on their profits, let alone the damage energy restrictions might have – either directly or through their suppliers.
For Bavan Nathan, the energy crisis that businesses are facing tells its own story of how risk management is changing. He says events of recent years – the pandemic, supply chain breakdowns, the war in Europe and now the energy crisis – have “changed the dynamic” of risk management, particularly due to their frequency. Nathan has considerable experience in business audit and risk management, spanning almost two decades, having served as internal audit, risk and compliance services leader for KPMG, and more recently as chief audit and risk officer at Tesco.
Changing risk
“In the past, companies have been very much attuned to responding to operational challenges, financial challenges and regulatory challenges, if you think through the ‘risk lenses’,” explains Nathan. “But what
Finance Director Europe /
www.financedirectoreurope.com
you’re talking about now are massive macro, strategic, global issues and risks that are impacting on them directly and almost daily.” Among them are issues of climate change and sustainability, food availability, skills and even general labour shortages, to say nothing of the conflict in Ukraine and the ongoing energy crisis. Perhaps unlike ever before, however, multiple challenges are happening simultaneously and are indeed intertwined – what happens in Ukraine, for instance, impacts energy and food supplies too.
“You’re already starting to see the big industrials and manufacturers manufacturing and stockpiling their products.”
In relation to the looming energy situation businesses will likely be in, Nathan says risk managers are providing support to their senior leadership. A tangible impact is an increase in scenario planning, where they aggregate data, both internal and external, structured and unstructured to, as he puts it, “provoke the conversation” among senior leadership. This, Nathan adds, would typically have happened once or twice a year at best – but in today’s climate it is happening more frequently. Similar to those interrelated geopolitical developments, meanwhile, what happens in energy markets may not only affect a company’s bottom line. Less energy-intensive sectors – particularly customer facing ones – could face a downstream impact scenario that increases their costs, interrupts their supply chains and ultimately stifles their ability to function properly. “You’re already starting to see the big industrials and manufacturers manufacturing and stockpiling their products,” says Nathan. “Some of them are pivoting to actually reduce production levels and, as a result, their energy consumption, and some have set in motion their detailed contingency plans on the basis that if they can’t manufacture, [should they] scramble to procure from alternative sources?”
199,928
The amount of natural gas in cubic metres that Russia exported in 2020.
OPEC 2020 23
catarsan/
Shutterstock.com
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