Young Leaders: How to Look at Risk More Sustainably

How should an environmentally responsible CEO look at environmental risk today?

Well, I divide risk into two broad categories. There are a whole set of risks, exogenous risks that are a function of what companies either do or don’t do themselves. Your pollution risks, your waste resource risks, all of those risks. They’re in your control. The more you deal with those risks, the less exposure you have, the better you’re managing them. The more you don’t deal with them, you put off reducing your air pollution, or put off dealing with a local community in a collaborative and effective way, the higher your risk is. Those are all in your control. The big risk for business going forward is what I think of as exogenous risks. That’s the risks of what other people do or don’t do but might interfere with your ability to generate revenues and value. It can be anything as simple as if you have a water intake and somebody upstream is polluting that water intake, what do you do about that? Or how do you get something done about that? In the case of something like climate change, what on earth are you going to do about the fact that you’re trying to run a water-intensive mining operation in a part of Chile that has no water. Climate change is going to make that worse and put your costs through the roof. How on earth do you think about managing that risk?

Having a much more comprehensive sense of the risks to the business including what are often thought of as soft risks and beginning to understand that they’re not soft. Soft tends to mean we can’t easily quantify them. That doesn’t mean they can’t actually destroy the business pretty quickly and effectively as we’re seeing. A lot of businesses today who are discovering that the exogenous risk of a virus somewhere is putting them out of business. That’s a rather dramatic example. You need to think, especially if you’re in any kind of business that’s looking for long-term value creation, you need to think about how you manage the context in which the business works, as well as the actual operations of the business itself. That requires a wider breadth of knowledge and a wider understanding of the world than is typically available to most corporate executives.