Environmental Risks and Business Continuity Management

The World Economic Forum has named climate and other environmental risks as a top global risk for seven consecutive years. At the same time, leaders at both state and business levels have generally failed to build the sustainability, resilience, and agility needed to handle environmental threats.

According to a 2016 report by ClimateWise, there is a widening gap between insured losses and total economic losses from climate-related natural catastrophes. In 2015, this gap was more than USD 100 billion. Both countries and businesses do not completely understand their risk exposures and thus are inadequately prepared for adverse events. 

As reiterated in previous articles, risk management and business continuity management have to be initiated by board members/ senior management as part of a long-term strategy. It is only by identifying potential vulnerabilities and the risks in companies’ global supply chains that businesses can take the appropriate to mitigate the risks or use them to their advantage.

As a bare minimum, businesses often look to manage the risks associated with property and infrastructure damage, the safety of employees, and so on. However, environmental concerns today are also tied to social challenges as well as resource scarcity. An acute example of a growing environmental risk is water scarcity, with potential impacts on global businesses. As a result of water scarcity, growth rates in regions of Africa and the Middle East could fall by up to six percent of GDP by 2050. Further implications of water scarcity include food scarcity, social unrest, migration and other challenges.

As environmental events can often be widespread in nature, businesses, the public sector, and civil society all share a certain level of risk associated with them. Thus, while individual businesses have the responsibility to their stakeholders, staff, and relevant communities to ensure that adequate business continuity plans are in place, there should also be state-level measures in place in order to anticipate and recover from disasters.

New technologies facilitate innovative solutions to reduce the potential impact of environmental risk, but most businesses still often remain unaware of what they face. A large proportion of companies still rely on centralized resources, thus a localized extreme weather event can result in a global supply chain crisis.

Environmental risks can cause high financial impact. In order to maintain investor confidence, it’s vital that companies that fail to demonstrate their emergency preparedness.

All in all, a company that thoroughly understands its dependencies and vulnerabilities can acquire a competitive advantage by risk transfer or hedging on their risks.

Companies engaging in activities related to prevention, mitigation, risk transfer, and preparedness as part of a holistic Enterprise Risk Management framework stand to not only reduce the risks that could obstruct the achievement of project/organizational objectives, but could also identify strategic opportunities.

 Developing and lower-income countries especially are more susceptible to accruing large losses when it comes to environmental risks, due to low-maturity plans and frameworks. The likelihood to an event needs to be taken into account, but it can be said that by failing to prepare for extreme events, a country or organisation is hindering its future development if faced with potentially devastating costs.

Of course, it must also be taken into consideration that like all risk, the likelihood and impact of environmental events can change quickly. There can also be a lack of consensus when it comes to scientific or public knowledge of future hazards. Some experts are still often divided, for example, on the topic of climate change, and the extent of its effect on future environmental events. Additionally, faced with a large range of data, organisations have to determine the possible impacts arising from a large web of risks in order to invest in the right business continuity and disaster recovery plans. 

At the bottomline, for companies seeking to prevent high costs and disruption, it’s vital that your organization, down to individual employees, have the framework, processes, plans, and culture in place to defend against disaster. 

Managing risks by developing a business continuity strategy is key to survival. View our upcoming Business Continuity Manager (BCM™) program and develop the skillset to lead business continuity efforts in your organization.

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