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MONTE CARLO, Monaco-An increasing focus on sustainable development will make environmental risk management more important, an expert says.
The challenge of sustainable development, or achieving economic growth at as little cost as possible to the environment, creates new dimensions for the risk manager's function, said Bjorn Stigson, executive director of the Geneva-based World Business Council for Sustainable Development.
Mr. Stigson, who gave the keynote speech earlier this month at the biennial Risk Management Forum, is the head of an organization representing 125 international companies, including insurers, from more than 35 countries that share a commitment to economic growth while recognizing the need to protect the environment.
The fact that sustainable development was selected as the theme of the keynote speech for the forum "is itself an important sign of the change in how the environment is being perceived," Mr. Stigson said.
Regulatory authorities, investors and the public increasingly are pressuring businesses to protect the environment.
Mr. Stigson told conference delegates that the need to manage environmental risks "can only increase."
The challenge for risk managers includes the difficult one of knowing how to judge the long-term environmental vulnerability of their companies.
One way of addressing this problem is to use a scenario-planning approach, which is what the WBCSD is doing in a project it started seven months ago, Mr. Stigson said.
The two key parameters of these scenarios are:
The uncertainty regarding both the resiliency of Earth's ecosystems and how much companies should spend to address environmental problems that may not manifest themselves for 20 to 30 years.
Corporate governance-assessing whether individual governmental and international agreements will become stricter or more lenient regarding industry's responsibility for sustainable development.
Mr. Stigson warned that "we are just touching the tip of the iceberg" in terms of the changes on the way in regulation and sustainable development.
In the future, a company's license to operate will depend on is-sues such as corporate social responsibility and the rate at which it uses up natural resources. In addition, companies that cause pollution likely will face higher taxes, he said.
"The risk manager will have to ask who in their company is qualified to address these ethical and social issues," added Mr. Stigson.
One of Mr. Stigson's concerns is that intergovernmental agreements may not set "realistic" targets for sustainable development.
Mr. Stigson cited the example
of the carbon dioxide reduction targets agreed at the June 1992 Earth Summit in Rio de Janeiro, Brazil.
Those targets call for industrialized nations to reduce emissions of carbon dioxide and other gases to their 1990 levels by the year 2000.
However, with the world's coal-fired power stations on average 35 years old and expected to remain in use for another 20 to 25 years, it is inconceivable that carbon dioxide emissions could be cut within seven years to the targeted levels, Mr. Stigson said.
"What I'm worried about is that the governments will go to (the follow-up global environmental conference being held in Kyoto, Japan) in December and not form realistic solutions" to today's environmental problems.
Any agreement reached in Kyoto should take into account businesses' investment cycles, he added.
For example, it is unrealistic for a government to expect a company that has just constructed a coal-burning power plant to quickly meet a carbon dioxide reduction target.
Nevertheless, the WBCSD believes that in the five years since the Rio summit, there has been "great progress" toward finding ways of implementing the goal of sustainable development, Mr. Stigson said.
Key to this has been "a shift from a fractured view of environment and development issues to a holistic view of business and sustainable development," which includes businesses seeing sustainable development less as an extra expense and a hindrance and more as something that when handled correctly gives them a competitive advantage.
This is where the role of the risk manager is crucial.
"The quality of a company's environmental management provides the outside world with a good indication of the overall quality of its business management," he told delegates.