Global Warming: What Does it Mean to Your Bottom Line?
Steven Minsky | Dec. 11, 2007
Al Gore received his Nobel Peace Prize on Monday and urged the United States and China to make the boldest moves on climate change or “stand accountable before history for their failure to act.” The cause and effect of global warming on a macro scale are well documented. However, most companies would be hard pressed to understand how global warming will affect their company’s operations and bottom line in measurable terms. Failure to act may be attributed in part to lack of motivation considering the high expense of corrective action.
This is an opportunity to illustrate how Enterprise Risk Management can be applied to turn the hype into a hard dollar business case for concrete actions. Consider the task of each corporation individually to translate the consequences into how it will specifically hit their bottom line and their stakeholders and weigh the cost benefits of action or inaction. Using Enterprise Risk Management, a company would review risk factors within each of five root cause risk categories to determine how global warming may affect their company (External, People, Process, Relationships and Systems) For example, a manufacturing company in Michigan going through this exercise may determine that global warming falls under vendor relationships for their shipping distribution. Global warming has been attributed to the lowering of the water of the Great Lakes by more than 3 feet. The falling water level is already affecting Lake Superior’s shipping industry. Freighters carry less cargo now for fear of running aground. Further, that same manufacturer may find liability in the increased effect of the effluent that drains into the Great Lakes. As the water drops, previously safe emissions may now result in compliance issues and liabilities for civil actions.
The movie Civil Action is based on a true story about a class action lawsuit being filed on polluters decades after the pollution took place. The settlement was for $70 Million. Could today’s industrial titans have a liability accumulating regardless of their geographic location? In this case of global warming it appears history may be about to repeat itself.
Organizations need to build their own business case for action based on detailed information relevant to their company, culture and industry. The general ledger in a company keeps track of all risks that have been realized. Not very helpful for forward looking risk. An Enterprise Risk Management system identifies and tracks risks that have not yet happened. With an Enterprise Risk Management system future expenses and liabilities can be predicted, acted upon and mitigated before they hit the financial statements. The bonus is that you can get Sarbanes-Oxley compliance done at the same time.
Find out how to translate risk into action, The Risk and Insurance Management Society offers a free self-assessment on Enterprise Risk Management readiness using a maturity model. You spend 20 minutes of your time and get a personalized report for your organization detailing where you are and what needs to be done to improve your bottom line with enterprise risk management. Taking a page from Al Gore, no more excuses on how to take your ERM program to the next level. Remember, your career and your company will stand accountable for your failure to act.