1. Crystalize risk management expectations
To propel the CRO, it is important to outline the board’s risk management expectations. The survey data outlines four key areas where there is significant opportunity for improvement, which require the following actions:
Take a holistic approach to risk management
Boards want a holistic approach to risk management that incorporates both emerging and traditional risks. However, just 39% of boards today believe their organization’s risk management capabilities are more than moderately effective at managing both atypical and emerging risks.
Identify opportunities in risk
Boards require executive management to better identify opportunities that lie in risk. For example, if a new competitor emerges and secures a new venture funding round, this development might be included as part of the wider reporting on competitive risk.
However, in this example, this business also presents an opportunity from the board’s perspective, as an acquisition target or a potential strategic partner. Therefore, boards must adequately challenge executives, including the CRO, to identify these “upside risks”, and consider how they might be reframed as opportunities.
Interlink risks with secondary impacts
Boards want CROs to better assist executive management in considering how risks are interlinked and identify potential second-order impacts. For example, climate change presents interconnected risks for businesses related to operations, supply chain, customer base displacement and reputation, assuming limited action.
Boards identify this as a key area for improvement. However, only just over half (52%) say their risk management capabilities are more than moderately effective at understanding how different risks are interconnected.
Consider a wide range of stakeholders
Boards expect executives, including CROs, to consider the objectives of a broad set of internal and external stakeholders when assessing risks as part of business decision-making. Through doing so, the outcome expected is the elevation of the importance of risks like climate change and ESG factors, therefore enabling boards to challenge management on key topics, such as how supply chain partners are decarbonizing their operations.
In the financial services sector, there is already evidence that ESG risk factors are increasingly considered in business decisions. For example, 48% of CROs within banks say ESG is embedded in their loan decisioning processes.
In addition, boards should also ensure that CROs (or their equivalent) are fully aware and are kept updated of the business’ strategy and long-term ambitions, sharing any insight about emerging megatrends that might impact the business. This is a crucial input to assist executive management to mitigate downside risk and capture “upside” opportunities.