Risk Governance & Management
The unique challenges and opportunities presented by the Energy Transition will have a profound impact on risk governance and management for energy and chemical companies. For example, the longer-term time horizon, significant scale of change, and high levels of uncertainty need to be integrated into risk assessments, capital allocation decisions, and the broader company strategy.
Figure 1: Risk governance should include i) risks to the current business, ii) risks in executing the transition, and iii) risks to the future business
The Energy Transition presents a wide array of risks, challenges and possible opportunities, particularly to incumbent energy and chemicals companies. Typical corporate risk management processes are not designed to address these types of risks. Critically, while the end ambition of a “Net Zero” world is increasingly accepted, considerable uncertainty remains about the mechanisms and timing for making the transition, and progress is subject to many unrelated short-term developments.
The Energy Transition creates risks to the business today, to the ability to make the planned transition and to the viability of the future business that cut across the normal distinction between risk management and strategy development
Misalignment between risk management, capital allocation, investment appraisal and strategy is itself a critical driver of risk to the business
The use of published scenarios to manage the risks of the Energy Transition can appear ubiquitous, but they are not a risk management tool and the results can be misleading
Comparator companies in the energy sector also appear to be struggling with how best to manage the risks, but there are some examples of potentially good practice
The challenges of the Energy Transition require businesses to adapt their internal risk management and decision-making processes to ensure that the business has both a broader, longer-term and more joined-up view of future developments and risks
“Most of the companies that Irbaris has engaged have not yet considered what their 2030 risk report would look like.”