There has been increasing focus on non-operational performance among investors, insurers, communities, governments, and other stakeholders across multiple sectors. The demise of Silicon Valley Bank and Credit Suisse this year alone, has the general public asking about risk management of these organizations particularly when reverberations of failure are felt globally.

The Mining and Energy sectors are no different. The aura of credibility and trust had been waning prior to BP’s Deepwater Horizon explosion in 2010, but now with renewed focus on non-technical risk management, these sectors are firmly on notice. Stakeholders expect their corporate citizens to declare their purpose, define what’s important and demonstrate that they are creating and sustaining value. On top of generating profits, organizations are now expected to reduce their environmental impacts, protect workers and communities where they operate, and contribute positively to society. Sadly, the response from legacy mining and energy organizations to these heightened expectations is the publishing of an annual Sustainability report.

Unfortunately, these reports often look the same: glowing statements of intent, tables of data punctuated with flowery narratives, sums of money spent on sustainability, and basic emissions data. These only scratch the surface of the much larger story. In short, the sustainability report is a demonstration of an organizations capacity to administer data and reports. What’s missing from organizations is information that provides a wide range of stakeholders the assurance that they are capable to manage risks.

The term ‘performance’ is often used out of context and confused with the term ‘results’. Results quantify what happened, performance measures what’s happening. For example, results are the total GHG emissions produced while performance data are used to measure the integrity and reliability of all technical systems, processes and activities involved in generating GHG emissions. While the distinction may seem minor, it is a very important one and can be easily summarized:

“Results are what happened, Performance is what’s happening”

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Valuing Risk Performance

It is high time that organizations begin to value non-operational risk exposure as they do operational and financial risks. It is estimated, for example, that Environmental, Social and Governance (ESG – a terms oft used for the bucket of non-operational and non-financial risks) opportunities are valued at over $53 trillion. With that much value to unlock, it is worth taking a closer look at what risk performance is and how businesses can value risk performance to differentiate themselves from their peers.

Unlike results, measuring performance is a dynamic exercise. The performance of risk in value chains and controls (e.g. asset integrity) is best expressed over time and not as a moment in time - akin to the difference between speed and momentum. Monitoring performance is done over time while an audit is a snapshot. Year end production is also time-bound.  In order to value Risk Performance, organizations must be able to: 

• Link the design of risk-related value chains to the organization’s purpose and objectives
• Build internal capabilities to know what to measure and identify the right people who know when to act
• Deploy the capacity to collect and analyze data on an industrial scale to measure the performance of the value chains and risk exposure
• Build the capacity to receive, consider and prioritize new information
• Intervene on the areas of underperformance and inform the right decision makers in a     timely manner
• Communicate with their stakeholders in a decentralized way to demonstrate how they are managing risks 
• Monetize the exposure that allows them to express the value of these activities in similar ways they would for operational and financial risks
 

The output of this risk management approach to performance is transparency. This provides a clear line of sight for decision-makers and senior executives. The outcome is greater assurance for a variety of external stakeholders including (but not limited to) insurers, investors, local communities and host governments. Lastly, the effect of this approach is to build resilience through learning and improvement. 

Some examples on how organizations can measure risk performance and make the distinction between results and performance for the following risks:

1. Transportation of Critical Equipment, People and Hazardous Materials 

Results: Number of motor vehicle accidents

Performance: Providing assurance that all trips have a driver that is fit for duty, a vehicle that is fit for purpose and the route is free from unacceptable hazards. This will provide significantly more confidence to those in neighbouring communities and relying on local water sources that risks are being well managed. 

2. Emissions of Greenhouse Gasses

Results: Volume of GHGs emitted over a period of time

Performance: Integrity levels of the assets that produce those emissions. 

3. Diversity & Inclusion

Results: Gender and racial backgrounds of their leadership team

Performance: Demonstrate that an organization is reaching out to marginalized or underrepresented groups, have transparency in hiring/succession processes and that all levels of the organizations are involved in understanding how risks are being identified, assessed, controlled and monitored.

Show Your Work

Anyone who has helped a 10year-old with long division (or been a 10 year-old doing long division) knows the adage of ‘show your work’. Students only get full marks for both arriving at the right answer and showing how they got there. This demonstrates an understanding of the process and provides confidence that given different variables the student can repeatedly achieve the correct results. So, if students are expected to show their work to earn full marks, shouldn’t we demand the same from organizations on the decarbonization critical path?

Valuing risk performance completes the story that statistics and reports alone fail to convey. Results focus exclusively on achievements.  Demonstrating performance enables internal and external stakeholders to understand how well an organization is managing its risks. Measuring and communicating what’s happening increases the confidence that the results achieved have been done so in a safe, repeatable and sustainable manner.

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