An international survey on environmental risk management finds executives are turning more attention to the issue, but most have not developed a coherent plan to address their exposures, or ignore it altogether.

An online survey conducted by The Economist Intelligence Unit and co-sponsored by Hamilton, Bermuda-based insurer ACE asked 320 risk managers around the world about their attitudes on environmental risk management.

Among some of the key points outlined in the survey--taken this past March and also sponsored by KPMG, SAP and Towers Perrin, include the following:

o Environmental risk management is frequently managed in an ad hoc fashion.

o There is no clear consensus about who should be responsible for environmental risk.

o Many companies do not make a formal environmental risk assessment when forming strategic relationships.

o Many executives say compliance with environmental legislation is a key strength.

o Managing environmental risks associated with suppliers and partners is a key area of weakness.

o Better reputation with customers and investors is seen as the main benefit of environmental risk management.

o Climate change is an opportunity as well as a risk.

o The main obstacle to effective environmental risk management is the lack of certainty about the impact of environmental liabilities and the future scope of legislation.

"When companies are planning major strategic activities, the consideration of environmental risk remains the exception rather than the rule," Karl Russek, senior vice president for ACE Environmental Risk, said in a statement.

"Fewer than half of the respondents to the survey say that they undertake a formal assessment of environmental risk when developing new products and services, and fewer than one in five when planning mergers and acquisitions," he noted.

"Environmental risk management is rising on the corporate agenda, but many companies are in the early stages of addressing this issue," according to Rob Mitchell, editor of the survey report for Economist Intelligence Unit.

"While there are some companies that take environmental risk very seriously and have developed robust processes to identify, assess and mitigate their exposure, others continue to manage environmental risks in an ad hoc way and do not consider them when planning major strategic activities--such as mergers and acquisitions," he added.

In an e-mail to National Underwriter, Mr. Russek noted that ACE has sponsored the Economist Intelligence Unit's survey since 2005 to provide "valuable insight into the attitudes of risk managers across the globe."

He said the latest report is of particular interest because of the environmental risk solutions the insurer provides to help mitigate their pollution liabilities.

The survey also gives the insurer greater insights into risk managers' concerns "about the lack of international regulatory harmonization, and highlights how environmental risks are currently managed and how they view climate change."

The survey notes that while the development of risk management practices over the years "has been toward a formal, coordinated and consistent approach...environmental risk management seems to have escaped this trend," adding that it has not "become part and parcel of the main risk management agenda."

For example, of those surveyed:

o 33 percent said the risk is handled in an ad hoc way.

o 31 percent said environmental exposures are addressed as part of a risk management framework.

o 26 percent said the issue is coordinated, but separate.

o 10 percent said it is not handled at all.

On the question of who within a corporation is responsible for environmental risk, there was no consensus on the individual, but the plurality--24 percent--put it in the hands of the chief executive officer, while 19 percent said it is handled by the chief risk officer.

Twelve percent put it in the hands of the heads of business units, while 10 percent said it was the chief sustainability or corporate social responsibility officer.

Other management levels--such as chief financial officer, chief legal officer or general counsel, regional directors or line managers--made up twelve percent.

Fourteen percent said no one had responsibility, while 7 percent said they didn't know, and 3 percent did not specify.

The survey report's authors suggested that corporations should have a bird's eye view of their environmental risk instead of a piecemeal approach that makes it more difficult to "obtain an overall picture of the risks they face."

On the strategic side of their businesses, only 41 percent of executives surveyed said their company conducts a formal consideration of environmental risk when developing new products and services.

More than 30 percent said they made such a formal consideration when either marketing new products or services, or selecting suppliers and partners.

The numbers fell below 30 percent on the issue of selecting a business location, planning expansion, or considering a merger and acquisition. Twenty-one percent said they conducted no formal consideration of environmental exposures with any of the above scenarios.

Indeed, when making an acquisition, few evaluate the environmental exposure. Only 38 percent said they go through a formal due diligence assessment, and 35 percent said they assess environmental legislation.

Fewer--21 percent--assess long-term liabilities related to climate change, while 19 percent assess environmental exposures to the supply chain. Thirty-seven percent said they did not think of that exposure at all.

On the issue of managing aspects of environmental risk, 51 percent of those surveyed credited their dealing with environmental regulations as their strongest suit, evaluating themselves as either very successful or successful.

The next strongest area for them was identifying environmental liabilities--at 49 percent.

The weakest area was applying hedging contracts to transfer environmental risks and optimizing supply chains to reduce carbon emissions--where 23 percent of executives said they had success.

The study noted that executives reported their greatest success at managing environmental risk where there are compulsory requirements, but are failing to recognize those situations where environmental compliance can create a competitive advantage for them.

The biggest benefit to be gained from environmental risk management is better reputation among customers, according to 59 percent of those surveyed. Only 30 percent said they would enjoy a better reputation among investors.

New business opportunities, greater operational efficiency and enhanced competitive position were all below 30 percent. Only 12 percent said a reduced overall carbon footprint would be the biggest benefit. Ability to influence government policy was at the bottom of the list at 11 percent.

"Based on our experience with organizations of all sizes, as the degree of environmental regulation and scrutiny increases across the globe, companies and risk managers would be well served to remain proactive on this issue," ACE's Mr. Russek said, in summing up the findings.

The complete results of the 19-page survey and additional commentary are available for free at www.eiu.com/globalriskbriefing.

"When companies are planning major strategic activities, the consideration of environmental risk remains the exception rather than the rule."

Karl Russek, Senior V.P.

ACE Environmental Risk:

Special Reports /

Top Execs Have A Long Way To Go In Getting A Handle On Pollution Risks

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