VIEW: Emerging risks don't have to be new risks

Boardrooms are increasingly aware that changes in global politics, societal opinion and technological innovation can have a far greater impact on their business models than ever before – and at a much faster pace. Businesses have always been vulnerable to emerging risks, but in today’s volatile and uncertain environment, disruption to established businesses is becoming more widespread.

The UK Corporate Governance Code, which was introduced by the Financial Reporting Council last year, now requires boards to specifically address emerging risks alongside principal risks in their annual reports, and to explain what procedures are in place to identify, manage and mitigate them. Despite this, boardrooms are still not paying enough attention to emerging risks, preferring to focus on easier-to-manage traditional risks.

The tendency is to focus on risks where they have useful data sets and control over their choice of direction. As a result, there is real a danger that emerging risks are being filed in the ‘too hard’ or ‘less important’ folder, leaving businesses highly exposed to changing winds that can fundamentally alter their course.

Part of the challenge is recognising that emerging risks require an entirely different approach to traditional or well-established threats. They are far harder to define, quantify and map and require a different, more imaginative approach. Formal assessments and heat maps should be exchanged for structured, creative discussions across business units.

Boards and risk professionals need to make space to think the unthinkable and speak the unspeakable. And note that emerging risks may not be new risks; they can also be known risks which take on a different profile or characteristic. This is as much about corporate culture as it is about processes.

Allowing space for this thinking requires a board that is open to and initiates challenge – a board that constantly asks ‘but what if?’ Risk managers have an important role in facilitating such discussions but ultimate responsibility must lie with the board. This is not to say that traditional risks are diminishing in importance – far from it. But the risk community must steer efforts to recalibrate the required focus.

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