The effective management of environmental risks is being hampered by a lack of certainty about the impact of environmental liabilities and slow progress on international regulatory harmonization, according to the latest research amongst senior risk managers by the Economist Intelligence Unit, co-sponsored by insurer ACE.
The survey of 320 senior global executives revealed that environmental risk management has been neglected by many, with 43% of respondents saying that they either managed it in an ad hoc manner or not at all.
When asked about the main areas hindering their ability to manage this category of risk, 35% cited that lack of certainty regarding the impact of environmental liabilities and 34% said that lack of international regulatory harmonization was the main issue.
Nearly half of respondents felt the ability to comply with legislation and identify environmental liabilities were major strengths in managing environmental risks. However, only 41% felt they accurately assessed the scale and scope of these liabilities and only a third felt they successfully made decisions on whether to absorb the risks or transfer them.
Both findings highlight the challenges businesses face in quantifying the true extent of environmental risks. Confusion also exists within organizations as to who carries ultimate responsibility for environmental risk management. A quarter of respondents said that the CEO is responsible and one in five attributed responsibility to the chief risk officer.
While the survey highlights the challenges many organizations face in getting to grips with environmental risk, there is evidence that many see clear opportunities from improved performance in this area. Almost six out of 10 cited an enhanced reputation with customers as the key benefit, ahead of a better reputation with investors which was cited by 30%.
Wayne Harrington, environmental risk manager of ACE for UK and Ireland, said: The findings are a wakeup call to organizations to act now to include environmental risks as part of their overall risk framework. Insurance can play an important role in protecting them but, to ensure it is applied to optimum effectiveness, risk managers must first ensure that their risk assessment procedures and reporting lines are clear and robust.