2020 requires new 20/20 vision for risk
This article was written for, and first published by, Airmic on 09 January 2020. It is the association for the risk management and insurance industry.
The nature of risk must be broadened and re-calibrated swiftly. This is a super-urgent priority for January 2020.
The deepening bush fires disaster in Australia and the public humiliation of Prime Minister Scott Morrison is the latest stark confirmation of what happens when leaders refuse to grip rapidly the nature of unfolding risks, this time posed by the climate crisis.
So the urgent implications for risk managers are profound. Nothing should be rejected as too extreme. There is an urgent new opportunity for risk professionals to take the lead.
In 2019, much of what we have all long taken granted was further unpicked. Our Thinking the Unthinkable work had already highlighted that the conformity which qualifies leaders for the top disqualifies most of them from accepting, embracing then dealing with the new scale of risk and disruption.
There is a much more to come. This means more instability ahead, with new and ever greater risks.
What is your plan?
Most immediate is the fast-growing public pressure for decisive action to counter the climate emergency. Those who fail to understand then embrace this must realise they will be marginalised and left flailing.
“There are a lot of laggards who are not really thinking about the whole issue of climate change,” says Fiona Reynolds, CEO of Principles for Responsible Investment, which represents $80 trillion of assets under management.
“A question for every company, every financial institution, every asset manager, pension fund or insurer: [is] what is your plan?” warns Mark Carney, the outgoing governor of the Bank of England. From February he will be UN Special Envoy for climate action and finance.
Most show no signs of gripping the scale of “the tragedy of horizon” that looms, its speed, or the plan they need, Mr Carney told Radio 4’s Today programme on December 30. That horizon is not just about climate. His analysis applies to risk more generally.
“By the time the extreme events become so prevalent and so obvious, it’s too late to do anything about it.”
Mr Carney warned of a harsh reality facing leaders. “It’s not moving fast enough.”
For the climate crisis, unless companies and investors wake up to the new scale of risk that is approaching at ever higher speed, many assets will become stranded and worthless.
The climate emergency must be seen as the prime metaphor for the urgent need to redefine risk. “If there is no action, there will be an emergency.” Mr Carney warns. That action requires “a variety of steps to bring the future into the present so that action is catalysed today”.
Progress, but will more follow?
There are hopeful signs of a shift in one key area: the purpose of business and its responsibility beyond pure profit-making. The call by the traditionally cautious US Business Round Table to drop the focus on shareholder primacy made a welcome impact last August. Then in November came an even sharper alert from the British Academy project on the Future of the Corporation: “The purpose of business is to solve the problems of people and planet profitably, and not profit from causing problems.”
This a profound flip on both business principles and risk. But will a critical mass of leaders embrace what now seems like the inevitable?
Sir David Attenborough, the 93-year-old public champion on the scale of new sustainability risks, has a sober warning. It needs bloody-minded determination to challenge conformist leadership.
Just before the New Year, the BBC’s Today programme brought him together with Greta Thunberg, the remarkable 17-year-old global symbol for reversing the climate emergency. Sir David told her she had “achieved things that many of us who have been working on it for twenty odd years have failed to achieve. You have aroused the world!” He thereby confirmed the huge cost of years of denial and foot dragging.
Our firm Thinking the Unthinkable alert for 2020 is that on risk, the climate emergency and a host of other pressing issues, many leaders will be caught with their pants down. But when your pants are round your ankles and you suddenly have to run to catch up, you fall over! Leaders beware!
The price will be high for those who fail to get this - and they are still the majority. C Suites, board members and all top executives across corporate and political life must do far more than just take note. They must act decisively. There is no longer a luxury of time to reflect or ponder.
Airmic and its membership are better placed than anyone to alert their leadership urgently to these new connected risks and the consequence of ignoring them. Together they can create the 20/20 vision on risk that is needed for 2020.