Environmental Risk Management - Strategic tool or PR-technique?

CONTENTS

LIST OF FIGURES

1. The term risk within the Environmental Risk Management (ERM)
1.1 Term definition
1.2 Applied term of risk in the Environmental Management

2. Environmental Risk Management
2.1 Typical ERM tasks
2.2 Risk analysis
2.3 Strategies to cope with environmental risks
2.3.1 Reason orientated strategies
2.3.2 Effect orientated strategies

3. ERM: strategic tool or a technique for public relations purposes

REFERENCES

LIST OF FIGURES

Fig.1: Global warming – an example of environmental risk

Fig.2: Shell Brent Spar – an incident that hit both the company and the environment

Fig.3: Model for the derivation of the optimal security level

Fig.4: The Risk Management Cycle

illustration not visible in this excerpt

For many contemporary companies the term Environmental Risk Management (ERM) gained in importance in recent years since the increasing ecological burden simultaneously means a higher danger of correspondent incidents for cor-porations. However, it is often claimed that ERM is mainly conducted only to satisfy major corporate stakeholder groups and to enhance companies’ reputation in society. Therefore, the objective of this assignment is analysing to what extent the instrument of managing environmental

risks is a strategic tool to save expenses or rather a technique for public relations purposes which needs to examine the following:

First of all, risk must be defined generally and then broken down into the applied term within ERM.

In a second part, the structure of conducting ERM will be analysed including possible strategies for companies to cope with environmental dangers.

Having hence clarified, which risks contemporary firms are faced with and how they can and should cope with them, the final analysis whether ERM is an effective strategic tool or whether it is merely a PR technique will be illustrated in the final part of this work.

1. The term risk within the Environmental Risk Management (ERM)

1.1 Term definition

The term risk, generally explained as a “combination of the probability, or frequency, of occurrence of a defined hazard and the magnitude of the consequences of the occurrence” (Park, 2003, 1), with hazard defined as “a property or situation that in particular circumstances could lead to harm” (ibid) can be broken down into three main parts.

Firstly and regarding the general corporate context, risk is seen as the danger of not achieving company objectives because of ecological influences.

Secondly and more mathematically used for safety-engineering production techniques for example is the quantifiable term of risk. By calculating the expected value of potential damage, risk managers try to objectify the environmental risks.

Finally, there is the subjectively perceived term of risk which is mainly based on qualitative factors such as the recognition and the familiarisation level of risks or the possibility of negative consequences for correspondent people and companies (Meffert and Kirchgeorg, 1998).

1.2 Applied term of risk in the Environmental Management

The risk term used within the Environmental Management is a mixture between both the individually perceived and the quantifiable term of risk mentioned above. Whereas the latter includes mainly risks regarding economic objectives such as profitability and high sales figures, the first also focuses on non-economic such as corporate image (ibid). It should be stated that you find a lot of literature that differentiates between environmental and ecological terms meaning that environmental risks are those “to human health from exposures in the environment at large” (Calow, 1998, 2) and ecological ones only those that could harm populations and non-human communities (ibid).

2. Environmental Risk Management

Even if an increasing number of companies is hit financially by environmental impacts, the assessment and analysis of ecological risks is still not widely used in business. Sales losses, environmental penalties or increasing costs for waste, just to mention a few, are facts that underline the need of including ERM in the general corporate orientation (PE Consulting Group, 2004).

2.1 Typical ERM tasks

In order to save expenses, environmental risks need firstly to be identified and assessed before the ideal security level according to the risk attendance of the correspondent company should be determined (Meffert and Kirchgeorg, 1998). Finally, each company needs special strategies to keep up and improve its ideal level of security, the main of which will be illustrated in the following.

2.2 Risk analysis

As mentioned before, the clear identification and assessment of environmental risks are vital prerequisites for a risk strategic orientation of companies. Here, “risk analysis is used to evaluate and manage the potential of unwanted impacts in many areas of activity” (Park, 2003, 2). Pollard et al. for example include four main steps in their risk assessment process starting with a clear identification of sources and components which could be affected and then conduct a hazard analysis which is used to determine the probabilities of an oil release at a certain tank for instance and how much oil could be released. This stage of the process also includes an exposure assessment which characterises the potentially affected receptors and how dangerous substances for example could reach those receptors. The whole process then ends with the final risk estimation and evaluation (Harrop and Nixon, 1999). Hence and through lots of other assessment techniques as well, the management department can check whether the firm is up to the mark of its ecological environment and which risks may arise from potential deviations.

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