Rethinking Risk, Taking Action

Time is ticking. Organisations must get clear about the risks facing their businesses and then get on with the job of addressing them. Admiring the problem is no longer an option – and some of the most challenging and pressing risks relate to culture and climate change.

Across both financial and non-financial sectors, organisations are asking themselves how to understand the impact of conduct and climate risk. It is time for change. Failure to properly address a poor organisational culture, or to respond to climate change and prepare for the transition to a low carbon economy, carry the potential for very adverse financial consequences.

Some key themes and insights on these issues emerged from the discussion at Norton Rose Fulbright’s 2019 Risk Symposium.

Start with the end culture in mind

• Determine your target culture and then design ‘production processes’ to achieve that outcome. Employee engagement, or happiness, is not the same as a good culture.
• “Values are the raw materials of ethical actions” but you need more than mere promotion of a series of behaviours. Make these real for your staff and colleagues. Share the ‘how’ as well as the ‘what’.
• Developing culture requires an organisation to set expectations of behaviour. Be very clear about what gets rewarded or applauded and what should be denounced.
• Consider your production processes – the power of leading by example, ensuring consistency, the “tone from above” and strategies for recruitment and in remuneration.
• Remember that ‘safety’ culture has now become the norm – we realised it mattered (a lot) and the consequences for getting it wrong are severe.

Constructive challenge is powerful

• Using the “power of disagreeability” respectfully helps to ensure issues get the right consideration and response. Leaders have a key role to play.
• Blind collaboration without challenge is the enemy of constructive criticism. It also leads to process complexity and impedes accountability.
• Be “blisteringly honest” to cut through irrelevance and find a better way forward. Do this without alienating those who are critical to success. Make it “me and you vs the issue” rather than “me vs you”.
• Constructive challenge takes practice, requires courage, and has to be supported by the culture of the organisation – is this in your DNA?

It’s immeasurably important (and challenging) to measure culture

• Organisations need to assess their cultures and sub-cultures, and keep refreshing that assessment.
• There is no silver bullet.
• Staff surveys, asking the right questions in the right moment, KPIs, HR data, data analytics, surveillance and exit interviews can all play a part – work out what works for your organisation and keep asking whether the tools are generating the insights you need. Work hard to triangulate the data, look for patterns and challenge your assumptions.

Climate risk is real

• This risk is “material, foreseeable and actionable, right now” – it’s existential and the cost of climate change is unavoidable. Do the work, balance the factors and make a decision on who bears the cost and when - do you buy now or pay later?
• Successfully managing this risk will take a “whole-of-system” approach – producers, extractors, emitters, innovators, lenders, borrowers, investors, regulators, policy-makers along with community stakeholders.
• Climate risk management is good business management. Climate change considerations should be embedded across strategy, governance and risk management frameworks. Encourage the conversation and debate to tease out how your business may be impacted by the physical and transition risks of climate change.
• Don’t be overly distracted by the debate on mandatory climate change reporting – if it’s a material risk for your business (as it likely is), then it’s mandatory already. Understand and disclose the impact - your investors are expecting this, and will welcome it.
• It’s complex. The data deficit, and unpredictability of climate change, cannot be underestimated. But remember that uncertainty is not an excuse for doing nothing.

Plenty of room for optimism

• Self-regulation is apparently not dead, just not in peak physical condition, so there is hope.
• It’s not all doom and gloom on climate change – there are opportunities for those willing to look. Australia is well positioned to be a pioneer in innovation – our exposure to climatic extremes means we should be aspirational in driving better solutions to climate risk.
• Beginning the journey towards effective climate risk management requires engagement at all levels within an organisation. Driving accountability for climate change policy and improved risk management will help ensure you don’t suffer your own ‘kodak moment’.