ERM and Sustainability: Beyond Buzzwords

The business world is full of buzzwords, paradigm shifts and new corporate focuses. Just walk down the aisles of the business section of any bookstore and check out the ever-changing selection of the latest and greatest methods for being the best. How do you know when it is real, lasting and something to which you should pay attention?  

One of the last big changes in the way business was done happened in the 1980s, when there was a move to Total Quality Management (TQM). Simply put, TQM takes a holistic approach to long-term success in an organization, seeking long-term, continuous improvement and the engagement of all employees in an organization. TQM informed the production processes of Toyota, Motorola, as well as the Six Sigma movement. As a result, the business world as we know it transformed for the better. Expectations and business cultures shifted accordingly.  Processes that were once seen as too expensive to justify are now regarded as the normal cost of doing business.

And now comes the latest shift in corporate culture, emphasizing enterprise risk management (ERM) and sustainability.

The Triple Bottom Line Approach

The concept of sustainability has its roots in environmental protection and social justice as far back as the 1970s. But the ‘Triple Bottom Line’ definition widely accepted today hails from British economist John Elkington in 1997. Simply stated, it defines sustainability in business as a three-legged stool: the environmental, social and economic aspects of sustainability are all incorporated into business management.

The purpose of the sustainability strategy at The Regional Municipality of York is to provide a long-term framework for making smarter decisions about growth management and municipal responsibilities that integrate the economy, environment and community. This strategy focuses on integrating a sustainability approach into all of our policies and practices, including water and energy conservation, forestry stewardship and public transit.   

Risk Management Defined

Risk management is here defined as a scientific process of well-defined, sequential steps that supports better decision making by providing greater insights into risk and their impacts. In layperson’s terms, risk is often conceived within four broader categories:

• Technically: Risk here is expressed as a statistical probability of an event occurring, often multiplied by magnitude and scope.
• Economically: Risk is expressed as the damage attributable to an event.
• Psychologically: This would be a qualitative evaluation of something as being “risky” or dangerous.
• Sociologically or Culturally: A framework of a situation based on collective or cultural patterns.

Enterprise Risk Management (ERM) is a popular business practice incorporating the five steps of risk management into its business processes. Much has been written about ERM approaches and definitions, including development of various working models. At York Region, we have developed our own hybrid model, using our risk management committee at its core for implementation.  

Ultimate Risk Performance

We have brought together management staff from each of our business units to take part in our Ultimate Risk Performance approach to holistic risk management. After intense training and culture-building in the area of risk management (including defining our categories of frequency/likelihood and severity/impact), we formed teams to compile a comprehensive risk registry. Risks were then evaluated, “heat-mapped” and prioritized to help develop specific and general plans regarding risk treatment and mitigation.

In developing the risk registry, we created a process that included several steps to be followed: • Define a risk event. • In teams, identify risk events for your operation.  This includes a detail of the event, the cause and the evaluation of current mitigation techniques, if any.• Evaluate each risk event in terms of likelihood and impact. This includes a scale of likelihood and seven categories of impact. Impact categories include:  – health/safety and liability;- financial; – region (reputation, social);- service delivery (internal and external);- compliance (regulatory, guidelines, protocols);- internal specific (any operational or administrative issues, strategies or plans); and- environmental influences (impairment or initiatives).• Assess/prioritize and implement treatment plans.• Monitor and report.

We have embraced and included sustainability concepts in our approach through the impact categories we developed. Measuring these impacts supports the development of sustainability strategies in conjunction with more traditional risk treatments.  

Sustainability and the Environment

Sustainability acknowledges responsibility for the effects of our relationships with the world in which we live. The common definition of sustainability is to meet the needs of the present without compromising the ability of future generations to meet their own needs. It has been said that sustainability is an evolution not a revolution.

The environmental component has been widely accepted and supported over the years. This has taken various forms, including reducing waste, Leadership in Energy & Environmental Design (LEED) programs, ratifications of protocols such as Kyoto, as well as life-cycle assessments of product or service design processes. These life-cycle assessments help make sure environmental and social costs during a product or service life cycle are not detrimental.

Social Justice and Sustainability

Social justice has been in the forefront of many news stories in the past decade, and has played a prominent role in educating the public about workers rights and abuses, socially responsible investing, boycotts of various “unfriendly” products and even new litigation arising from dangerous additives causing illness such as silicosis.  Brand attractiveness and stock performance are often tied to social responsibility in business.

Economics and Sustainability

The final leg of this stool focuses on economics.  This is not a measure of profitability alone but a measure of prosperity, opportunity and longevity of a corporation and its brand reputation. It includes overall performance, talent recruitment/retention and economic value.

Many guidelines and certifications have been developed and promoted as measures and processes for companies to follow regarding acceptable sustainability practices. These include ISO 14001, CERES’ 10-point code of corporate environmental conduct, International Chamber of Commerce (ICC) and its Business Charter of Sustainable Development, United Nations Environment Programme (UNEP) and other specific sustainability assessments.

Here to Stay

We believe sustainability is, in a word, ‘sustainable.’ It is not a fleeting buzzword for this decade. It embraces the need for us to be responsible corporate citizens of this world and to incorporate this culture into everything we do. It promotes the idea that profitability is not the only measure of cost.   Sustainability assessments need to be part of the already existing risk management culture. Defining risk too narrowly, without encompassing the three components of sustainability, fails to recognize opportunity for improving and continuing successful performance for now and into the future.