Addressing Sustainability Risk Using Technology

As Head of Technology Innovation Management & Future Positioning with a major Oil & Gas MNC, Dr M Hariz Abdullah not only brings more than 15 years of experience in the Oil & Gas industry with him; he also applies his experience in Risk Management, focusing on business and country risk management in particular. Coupled with a degree in Engineering and a PhD in Aerospace, Aeronautical and Astronautical Engineering, he was an appropriate presenter on the topic at a recent Tea Talk organised by the IERP®. The popularity of ERM, he remarked at the start of his presentation, was on the rise due to the uncertainty of the times, and the intensity of unprecedented events.

“Events that disrupt business are not new but what is really changing is their intensity,” he stressed. “ERM is a top-down strategy. It comes in to help us see how we can help mitigate the risk to achieve the organisation’s objectives. It is proactive.” Stressing that ERM optimises growth, he emphasised that it starts at the top, with an organisation’s leaders. He outlined five major benefits of applying ERM:

  • Create a greater awareness of an organisation’s risks
  • Increase its operational efficiency and effectiveness
  • Increase its ability to respond to risk
  • Enable the efficient use of resources, time and assets
  • Improve stakeholder confidence

His introduction to Sustainability covered a 30-year period from the UN Framework Convention on Climate Change at the Rio Earth Summit in 1992; COP3 in Kyoto, Japan, in 1997; and 2005, when the Kyoto Protocol went into effect; to the 2015 Paris Agreement and COP26 in 2021, which focused on building climate change resilience; curbing greenhouse gas emissions; and providing the necessary finance for these activities. Commitments by countries towards sustainable development have given rise to Sustainability Risk – the inability to ensure that progress improves economic efficiency, protects and restores ecological systems, as well as enhances human well-being.

Sustainability Risk Management (SRM), an extension of ERM, is emerging as a business strategy. However, it is confronted by many challenges in today’s environment, such as the limited knowledge of sustainability risk; thus, there is difficulty in quantifying such risks. “Sustainability Risk is a newly emerging risk,” he said. “Traditional risks such as market or credit risks are mature although they may still be evolving, but emerging risks require more understanding and the development of different quantification methods or approaches.” Sustainability Risk usually has longer time horizons than the more traditional risks, a factor which further compounds its challenges.

“There will be quick wins but the biggest effects will take the longest period,” he warned. Another challenge, he said, was that while traditional risks tended to target shareholders and regulators, Sustainability Risk included a wider audience such as employees, customers and communities. Additionally, although the topic of sustainability was not new, there was limited guidance for implementing appropriate risk management frameworks. Many companies were therefore finding it difficult to incorporate SRM within ERM. Caught between the need to sustain the environment and their businesses while constrained by diminishing resources, how should companies manage these risks?

He suggested developing new products, reducing emission levels, increasing their rates of reducing, reusing and recycling, and improving the responsible use of natural resources. Policies which support these measures should be introduced; governance in the area of sustainability should be enhanced; and technology and innovation should be the focus. Cautioning that technology was a very wide term that could be applied to something as simple as a crowbar, to the most complex of machines like a space station or a particle accelerator, he described it rather as material or immaterial entities created by mental and physical effort, to achieve value.

Technology also includes computer software, artificial intelligence (AI), blockchain, and the Internet of Things (IoT). While technology on its own can be beneficial and improve operations, it has exponential benefits when applied collectively. Citing an Oil & Gas example, he said that technology can be used to improve well-drilling in a specific location but with the use of digital technology, this activity can be remotely monitored to optimise performance. Clarifying that technology adoption in business means the acceptance of new technologies and their integration into existing systems, he acknowledged however that individual organisations react to technology in different ways.

“It is about using the full potential of technology in the process of adapting to the changing needs of consumers,” he explained. “Some companies are averse to adopting technology because they believe in the way they work, they believe that they are in a leading position, and that nobody can catch up. But in this day and age, we know that’s not true.” The benefits of using technology he outlined included better efficiency; a more competitive edge; enabling more efficient remote work and robust workflows; and better positioning for growth. The role of technology, he emphasised, was to empower businesses with new, improved systems so that they can offer better products and services.

Citing his organisation’s utilisation of technology as a differentiator, he gave a quick overview of a range of areas where technology and innovation were being applied to support the business, including in completely new areas of emerging technology, where they could be considered pioneers. Besides ongoing application of technology within the infrastructure of the organisation, it is also applied in robotics, remote operations and assistance, and big data analysis. The company’s efforts to safeguard its value chain, contain project costs, and protect its investment spurred it to optimise technology and tap into innovation to accelerate its projects, he said.

Stating that technology was generally a good thing as it could help improve lives, grow businesses and make them more sustainable, he cautioned that not using it for the right reasons or in the wrong manner or with the wrong intentions, could have dire consequences. He concluded with an exhortation for the participants to find their respective comfort levels of technological use, and to understand their particular needs and requirements before deciding what to apply.

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