Is Your Company Monitoring “Frontier Risks”?

Is Your Company Monitoring “Frontier Risks”?

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By Professor Gail Whiteman, Professor of Sustainability at the University of Exeter Business School

In business, it’s sometimes said you should expect the unexpected. But as we attempt to identify and navigate such global risks as climate change, biodiversity loss, and geopolitical unrest, it’s tempting to ask exactly how we do that.

Business leaders manage and navigate a multitude of risks every day. Some threats to business are predictable; looking back on the 2008 financial crisis, we can see there had been warning signs. Other threats, such as the 2011 earthquake and tsunami that touched off the nuclear disaster in Fukushima, Japan, are almost impossible to predict.

And as technologies break new ground and societal forces shift, “frontier risks” emerge. Unlike the high-impact, high-likelihood risks in our near future, frontier risks are characterized by unknown impacts, unknown likelihoods, or both from such developments as the commercialization of space travel, artificial intelligence weaponry, and rapid, massive methane release from the melting of the Arctic permafrost.

In my job as a professor of sustainable business, I often assist board members and senior executives, all of whom ask me what risks are coming and how to navigate them. That’s hardly surprising, given we now have had years of a pandemic in which the world has been hammered with risks that once may have seemed impossible but that science had been warning about for a long time.

But while I can’t see into the future, I do know the most basic and important first step for companies is to notice and make sense of the small shifts that may point to larger future challenges.

Watch for Warning Signs

How can we do this? First, by watching for warnings in the real world. Companies and organizations that expect volatility and uncertainty track small failures and rely upon frontline local knowledge to build up situational awareness and resilience that allow them to anticipate and contain surprises.

Second, by tapping expert knowledge. Listening to those with expertise in a particular area, workers on the ground, and local citizens is invaluable for managers located far from glaciers and flood zones or removed from other systemic trends such as geopolitical conflict that may not seem obviously related to their business.

It may sound simple, but “humans often fail to notice the small shifts that could signal larger future challenges,” a recent World Economic Forum report noted. Reasons for this include people and organizations having firm-centric mindsets and not observing the world around them in detail or relying too much on past experiences to predict risk.

As the founder of Arctic Basecamp, a science communications platform that aims to “speak science to power” to spark climate action, I’m particularly aware that when a risk is perceived to be far away, we find it harder to pay attention to it.

This year, I watched in horror as wildfires ravaged huge swaths of Siberia, releasing as much carbon as Germany produces in a year. In one of the most remote and desolate places on Earth, the wildfires showed irreversible climate change taking its toll, and businesses and communities far beyond the Arctic region will feel the economic impact.

Measuring Global Risks

So what are best practices in identifying global risks?

In Switzerland, the electrical operator Swissgrid operates the RiskTalk app and has a team that lets all employees report issues that could create risks for the strategy, operations, or safety of the organization.

And in the insurance sector, the CRO Forum, a consortium of chief risk officers from large multinationals, runs the Emerging Risk Initiative, which gathers and develops insights into new, developing, or existing risks and shares its ideas with the wider industry.

But even when following best practices, there are barriers and challenges to identifying the risks that emerge on the flip side of human advancement.

Gaining in-depth knowledge of climate science, new technologies, virology, and shifts in communications is not easy. And the information and expertise an organization needs to forecast risk are spread among a variety of groups and actors.

On climate, we need something to help us collect and synthesize the data from groups that may not regularly interact: scientists, senior executives, government officials, members of Indigenous communities, and local citizens. We then need to provide that synthesized data to business managers and municipalities so they can use the information and take action.

One way to do this could be to develop a global risks dashboard that compiles transparent real-time and longer-term trend data supplemented by risk analytics. It could compile all the economic, social, and environmental risks and provide analysis that summarizes and prioritizes these risks.

The COVID-19 Dashboard, developed by the Center for Systems Science and Engineering at Johns Hopkins University in the early days of the pandemic, is a good model of a tool that could be extremely useful in tracking the small shifts in trends that could lead to high-impact disasters.

Board and senior executives need to start scanning the horizon in a different way. Big risks are coming, and our existing tools of risk management, built on the assumption of relative stability with some kind of competitive volatility, are no longer suited to identifying these risks.

U.N. Secretary-General António Guterres calls climate change a “code red for humanity,” but it’s not the only one—new infectious diseases, biodiversity loss, and geopolitical instability all show that volatility has reached a systemic level. To navigate these treacherous waters, businesses need a collaborative edge—with each other and with different parts of society—and to move “beyond the firm” toward a systems view of social and ecological risk.

Learn more about how partnering with the University of Exeter Business School can deliver practical solutions that help your organization prosper in a responsible and sustainable way.

Gail Whiteman is a professor of sustainable business at the University of Exeter Business School and founder of the science communications platform Arctic Basecamp, which has hosted four high-level events at the World Economic Forum in Davos (2017-2020) and COP26.

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