Talk about environmental risk and the first thing that pops into most minds is global warming. Mention it to Satoru Hiraga, managing director of strategic risk advisory firm Marsh in Japan, and he thinks of the leading global risk to finance executives today.
"First and foremost, all of us have to tackle the question of environmental risks," he said at The Economist's Japan chief financing officer roundtable in Tokyo earlier this month. "How companies tackle environmental problems is not only the problem of the CFO, but the whole of the company."
Hiraga was speaking about the Global Risks 2010 report published by the World Economic Forum in collaboration with Marsh and four other companies. The publication emphasised interconnected systemic risks -- those that pose threats to the entire system versus just one aspect of the system, with environmental risks figuring prominently out of the 36 highlighted.
Environmental issues covered in the report included the 'more likely' threats of air pollution, extreme weather and droughts, to the 'less likely' threats of coastal and inland flooding.
"There are large-scale, slow-moving shifts already underway for which current levels of preparedness are insufficient and whose implications could have far-reaching and highly costly consequences," said the report. Acknowledging these shifts and their implications is what Hiraga said corporate finance executives must do today.
"If you discuss risks with a CFO, the answer is [almost always] investment risk," he explained. "They don't take into account environmental risks."
Hiraga said finance executives should understand where their company's revenues come from -- not so much from their customers but from further upstream -- and what threat environmental risks pose to the future sustainability of those supplies.
"It's not the CFOs responsibility to react to environmental risks," he continued. "It is their responsibility to be aware and share those responsibilities with other board members and people in charge."
Some corporations have already taken environmental risks into account in their supply chains. Takatoshi Ohkubo, chief process officer at Sumitomo 3M, said that the company launched its "3P programme" or "pollution prevention pays".
"We wanted to lessen the burden to the environment which we felt could save resources and money in the process," he explained. Of course, manufacturing processes are typically not within the scope of a CFO or treasurer's duties, but Ohkubo acknowledges how being aware of the environmental risks to a company's supply chain is good in terms of both mitigating that risk and improving the bottom line.
3M selected SAP's enterprise resource planning Business Suite 7 software for the region earlier this month. The system should allow the company to improve control of its cash flow and manage risk, including environmental issues.
