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2. Strategy and objective-setting for ESG-related risks

Table 2.4: Top ten global business risks for 2018

Megatrend Description
Business interruption Supply chain disruption, factory fires, destroyed shipping containers, cyber incidents
Cyber incidents New threats such as “cyber hurricanes” and tougher data regulation; a single cyber attack can
potentially impact hundreds of companies
Natural catastrophes Numerous natural catastrophes in 2017 could indicate increases in the future due to the impact of a
changing climate
Market developments Waves of M&A activity, digital revolution, political uncertainty
Changes in legislation Changes in global trade agreements, uneven monetary and regulatory conditions between regions
Fire/explosion Physical damage and business disruption result in losses from fire and explosions
New technologies Technological advances, digitalization, interconnectivity and information exchange
Loss of reputation/brand Health and safety incidents, product recalls and data security breaches – exacerbated by social media
value and interconnected supply chain
Political risks and violence Terrorism, threats to transportation infrastructure and locations with large groups of people, increased
political activism
Climate change/increasing Increasing frequency and severity of weather events
volatility of weather
Adapted from 2018 Allianz Risk Barometer

Using megatrend analysis as a starting point for ESG analysis in the business content
CLP Holdings Limited’s (CLP) Senior Director of Group Financial Planning and Control and Director of Group
Sustainability piloted an approach to update its annual ERM process to better capture longer-term risks,
including ESG-related risks.
The first step was to identify the global risks and trends affecting CLP. Various groups collaborated to
draw on the Risk Management Group’s experience analyzing economic megatrends and the Sustainability
Group’s experience analyzing longer-term environmental and social megatrends.
The combined group developed criteria to select appropriate information sources, such as consultancies
and global organizations. Using these sources, they narrowed the list of megatrends to the top five
impacting the industry and company.
Next, they analyzed these megatrends, as well as any possible “microtrends” underlying them, for general
implications for the industry and CLP.

SWOT analysis
A SWOT analysis uses a two-by-two matrix to define the strengths,
weaknesses, opportunities and threats an entity is facing. A SWOT Guidance
considers both internal and external factors, so is a commonly used by
organizations as a strategic planning tool. Conduct strengths,
The World Resources Institute (WRI) has developed a sustainability-specific weaknesses,
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SWOT tool focused on understanding the SWOT from an ESG perspective opportunities and
(i.e., impacts, dependencies and related megatrends). The example shown threats (SWOT) analysis
in Table 2.5 relates to a hypothetical consumer products company.

Table 2.5: SWOT analysis example

Helpful Harmful
Internal Strengths Weaknesses
origin What are unexpected ways the company can apply its Do any peers experience similar weaknesses or face similar risks
strengths to ESG challenges? from ESG challenges?
Example: The company begins measuring water use and Example: The company is focused on its main competitive
promoting efforts to reduce water consumption. advantage for a single, water-intensive product.
External Opportunities Threats
origin Where is there a growing gap in which the company and Where are ESG challenges creating broad threats to future
others can create new solutions to ESG challenges? business value?
Example: New technologies reduce the amount of water Example: Some locations are experiencing water scarcity
required in manufacturing. and drought.
Questions adapted from WRI’s SWOT user guide

Enterprise Risk Management | Applying enterprise risk management to environmental, social and governance-related risks • October 2018 29