Four experts at Airmic Fest identified longevity, digitalisation and climate change as three trends that will change the way we do business. Here’s how they’ll affect risk management.
Thursday 24 September 2020
14:30: Panel Session: Three trends that will shape the world and what they mean for risk managers
At the Airmic Fest virtual conference, expert panellists were asked to identify trends that they believe will profoundly affect the way we work and do business.
They highlighted digitalisation, longevity and climate change as the three developments that will most revolutionise the working world. Of course, anything that will fundamentally change the way that a company operates will also have a significant impact both on risks that need to be managed, and on the role of the risk manager itself.
The first trend the panel examined was digitalisation, which has accelerated substantially in the wake of the covid-19 pandemic. Technological enhancements offer great opportunities for businesses, but there are also new risks too.
Supply chains are ever-more convoluted, as things are made in one country, sold elsewhere and used in another. That means your risks can pop up in multiple places across the globe.
Increased digitalisation also means that companies need to educate existing workforces or even bring new talent in.
Another challenge arising from digitisation is social media and the public understanding of risk. Consumers get their information from an ever-increasing number of digital sources and the threat of fake news is significant.
Richard Clegg, managing director at the Lloyd’s Register Foundation said: “There are risks that technology is running ahead of regulation. How do you regulate the system when you don’t know what it’s going to do until after it’s done it? Our old mindset of setting the law, inspecting against the law and then enforcing the law might not fit this modern world.
“We also have this issue around intergenerational fairness because the decisions that we take today and how we use these technologies are going to affect the people that come after us and they are going to have to live with the consequences.”
The next major trend identified by the panel was increasing longevity. Already biotech companies are investing millions of pounds to “solve the problem of death” and even the world’s most sophisticated pensions systems are buckling under the weight of us all living longer. One solution is for people to work longer, but that requires a seismic shift in the way we do work.
Yvonne Sonsino, global co-leader of Mercer’s Next Stage said: “Low interest rates, poor investment returns, market crashes, pension scheme redesign changes and weakening of design structures all mean that asset base is not going to support us. We need to be able to work longer which means we need to work in very different ways.
“With the coronavirus pandemic, the move to flexible working has been a very rapid one, a very effective one, and productivity is on the rise in terms of flexible working.”
She put forward a model of working where there are five elements of flexibility which all make up a flexibility quotient – all of which are becoming more readily available as a result of Covid-19.
1) Where you work – the rise of home working
2) When you work – people working around childcare or other shift patterns
3) What work you do – organisations restructuring the content of roles
4) How you work – rather than regular chunks of work throughout the year, a shift to intense periods when things are busy followed by slowing down
5) Who does the work – the rise of automation
She concluded: We’re going to see many more companies embracing more complexity around flexibility and that actually gives us access to much wider labour pools. I see the future of people as a really exciting and experimental place to be at the moment.”
The final trend identified was the issue of climate change, which is in a make or break period. Carbon emissions are still rising and countries around the globe face a herculean task to meet the terms of the Paris Agreement.
However, there are signs for optimism. The UK and Europe have already committed to Net Zero emissions and this week the Chinese government made the same pledge. On top of that, lessons from the coronavirus may be positive for tackling global warming.
William McDonnell, group chief risk officer at RSA Insurance Group said: “I do believe that China’s net zero announcement may be a real catalyst because they will be a huge influence in each of the key sectors of change. The learning from Covid is that we can take big actions that hurt the short-term economy even when we don’t know all the answers. I think trust in scientists has recovered some ground, and we have seen that governments can mobilise the public to make personal sacrifices when the common good is clear.
“Finally, that I think the big moral of the tale, which is really relevant for climate, is that if you wait for the pain before you act, it’s too late. Most people can see that it will get even worse and your actions ultimately will need to be far more drastic - so that leaves me actually more hopeful than I have been for several years.”
There’s no question that tackling climate change is for the good of society, but of course it will change business operations fundamentally as organisations take drastic steps to reduce emissions. We could see less business travel, more home working, more local supply chains, changes in fuel demand, progress on digital and stop of the move to denser city living to name a few.
Big changes for risk managers
All of these trends will mean changes for risk managers both in terms what threats they are likely to face and how they can be managed and mitigated. These are global problems, they are global opportunities and they require global solutions - so, risk managers need to embrace sharing and build coalitions of support around these risk areas.
John Ludlow, chief executive officer at Airmic highlighted three types of risk manager: operational, strategic and tactical. He argued that each type of risk professional will have to adapt to these trends in different ways.
He said: “Operational risk managers have to be crisis coordinators as well as risk coordinators… They need to recognise who their peers are in a company… so that you can all talk and work together. Be flexible, be creative. The world is no longer quite so policy driven. In a very dynamic world it has to be purpose- and culture- driven. The risk manager isn’t just somebody laying down the rules - they have to be very responsive and very proactive.
“At a tactical level it’s all about driving change and being competitive. When you’re risk manager at a tactical level, you need to be talking to the C-Suite in terms of achieving their objectives which are bound to include beating the competition.
“At a strategic level it’s about having a vision for risk management within your business and how it’s going to move forwards. You’ve got to have your mission, your strategy and your culture hammered out. But it’s also about challenging the purpose of the company - has the board really thought it through and does it have a true societal purpose? Does it does it have a strategy that’s actually changing with the times or is it clinging to yesteryear’s strategy? Does it live its culture? The risk manager needs to be able to stand up and call all these things out.
“Risk managers also need to think the unthinkable and whilst you know you don’t want to be accused of being a dreamer you do need to point out what might happen - however unlikely it is and the options for dealing with risks. Then you let the business decide what its appetite and its tolerance is.
“Historically risk management was all about being value protection, but I think that risk manager of the future needs to be able to balance that with value creation. Lastly I think the risk manager of the future needs to be forward looking and horizon scan because there’s no point in just looking through the rear-view mirror.”
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