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Free Article: Report Snapshot: Pressures and Risks in 2020

Friday 20 March 2020

The Global Compact Australia Network (GCNA) recently published their Pressures 2020 report.

The focus of the report is wide-ranging but from the perspective GRC in Australian businesses. Its common theme outlines the intersection between human rights and business impacts and the risk exposures to which business might open themselves up if they fail to consider where their business practices intersect with human rights.

The report also addresses how central banks in a few jurisdictions have followed the call of the Banks for International Settlement (BIS) to integrate climate change risks into their monetary policies, highlighting expected ‘critical consequences’ for banking and insurance if they fail to do so. The report acknowledges the recognition of climate change-related risks by the Australian Prudential Regulation Authority (APRA), Bank of England and the International Monetary Fund (IMF)

According to the report:
The United Nations Framework Convention on Climate Change (UNFCCC) has identified 1.47 billion jobs globally in sectors critical to climate stability.

Environment Risk

Companies and moral liability to climate change

While net zero emissions, the financing of a new coal power plant and the investment of renewables is a political football at present, there’s a growing risk for businesses with climate change-related risks on their radar.

According to the report, the Commission on Human Rights in the Philippines found that Shell and ExxonMobil may be ‘morally liable’ for their role in human-induced climate change that “…
interferes with the enjoyment of Filipinos’ fundamental rights”. The GCNA sees this as a precedent for other fossil fuel companies to be held liable for climate change-related policies.

Investor power

The report highlights the work of the Task Force on Climate-related Financial Disclosures (TFCD), looking at the role of Blackrock as an asset manager and their joining Climate Action 100+ (CA100+). 

AI Business Risk
Bias & other business risks

The report highlights the many benefits that have been attributed to the development and use of artificial intelligence, but also highlights that:

Without due consideration of these biases, businesses risk widens the trust deficit. Business needs to take an inclusive approach in the development and ongoing monitoring of their datasets. This includes undertaking a stakeholder mapping process that considers a diverse group of people who might be impacted by the technology, as well as including minority groups and outliers. Businesses can also use the UN Guiding Principles on Business and Human Rights.

Modern Slavery & Supply Chain Risk
Something that has already been covered in the GRC Professional Magazine is the Modern Slavery Act risks posed to those organisations captured under the legislation.

The GRC Professional interviewed Julian Hunn for the Summer 2019 Edition on how prepared he thought organisations were for the Modern Slavery Act and whether they were really in a position to make clear assessments of their supply chains. At the time, Hunn replied:

I am hearing companies are actually considering it as something coming more from the legal department as opposed to other departments, which not necessarily a bad thing. But many financial crime practitioners with whom I’ve been dealing are not necessarily the gatekeepers or the parties dealing with it.

With risk assessments still proving to be a challenge for financial institutions, Hunn also expressed doubt about their ability to clearly see their supply chains:

If financial instituitons have problems doing a basic risk assessment, then how on earth are we going to expect people in non-financial institutions to perform, in effect, an appropriate risk assessment?

Bushfire and more supply chain risk
With the media calling the summer of 2020 a ‘catastrophic’ fire season, the issue of supply chain risk should also be considered in the context of business exposure in this space. As an example, the GCNA report highlighted the impact bush fires have had on BHP’s Mount Arthur coal mine. According to the report:

Businesses that invest in greater visibility of their supply chain will see more success—in reputation, against their bottom-line and in consumer and investor sentiment.

Communication and rebuilding trust
The report highlights the importance of companies communicating effectively and rebuilding trust in a post-Hayne Royal Commission environment.

Rebuilding the Trust was the theme of the February Edition of the GRC Professional Magazine, where we spoke to KPMG Chair of Organisational Trust and Professor of Management at the University of Queensland, Professor Nicole Gillespie, on building trust by design in organisations. 
Gillespie posed some critical questions about which those involved in governance should be thinking when it comes to understanding trust and the complex trust ecosystem they have to maintain:

How do our leaders and managers enact their trust on a daily basis? How do they build it into their areas of influence? It goes to the governance structures and the systems and processes all the way through to how we design products. How do we involve customers in the design right from the beginning to ensure products and services are meeting their needs? How do we ensure the supply chain is meeting stakeholder expectations?
The report goes on to highlight that communication also needs to take into consideration the generational divide and ‘Gen Z’, which the report estimates will be 40 per cent of all global consumers.

According to the report:

The leadership team will need to talk openly on key issues and the CEO should lead on commentary about how the business is responding to issues that lie beyond business-as-usual. If public trust is to be regained, this will mean being radically transparent on the challenges and pitfalls, as well as the successes.