Enterprise risk management now critical in new risk landscape

An approach based on enterprise risk management (ERM) is more important than ever in today’s developing and expanding risk environment due to the very high volatility, velocity of change, and level of interdependency that we are seeing.

That is what Laurence Eeckman, a FERMA board member and chair of the ERM Committee, told FERMA Forum Today, when asked about the importance of adopting an ERM-based approach in today’s risk environment.

“In response, many large organisations are moving from a compliance-focused risk management approach to an ERM strategy to increase overall resilience, and to ensure they are better prepared to manage emerging risks,” she said. 

She explained that today’s ERM approach is comprised of two main components: the first is to address the breadth of risks that the enterprise is currently facing, while the second aspect is to properly identify emerging risks and assess those mid- and longer-term risks, such as exposures related to ESG and the potential impacts of artificial intelligence adoption and integration.

ERM functions ‘more integrated’ 

But she admits that the maturity of any ERM function varies by organisation. She said it is tough to generalise, as the sophistication of companies’ approach to this will vary depending on their size, location and the sector they operate in.

“It is difficult to make any overarching statement regarding the overall levels of ERM maturity,” Eeckman said. “Maturity levels very much depend on factors such as the type of industry the organisation is in, its overall size and scale, and also whether it is a listed entity or a private company.”

The results of an ERM risk maturity study, conducted by FERMA in conjunction with Marsh in 2023 ahead of the FERMA Seminar, showed organisations were on average mature, especially in areas such as risk reporting and risk management processes. It also revealed that ERM functions were becoming more integrated with other assurance functions—the second line of defence—a further sign of growing maturity.  

However, in terms of areas to focus on, the study showed that further improvements are needed in relation to risk management integration with sustainability and risk monitoring and support tools. “More recent research has shown that sustainability is becoming an increasingly important aspect of the risk management function,” she said.

“Too often the way that risk managers communicate on risk is in a way that does not resonate with the C-suite.”

Defining the critical aspects 

For many companies, she said, the focus should now be on elevating the ERM function to a more strategic level.

“Defining the governance structure for ERM is still a priority to ensure that the risk function is operating with the right mandate, in an independent role but equally integrated into the decision-making process within organisations. 

“Risk managers also need access to more practical tools to provide relevant risk information and present it concisely.”

FERMA has recently launched its ERM Committee to address these areas. She said the aim is to help define the critical aspects of ERM as well as providing practical guidance and support that helps risk managers proactively identify and analyse risks, as well as supporting key decision-makers in areas such as risk evaluation, treatment, and monitoring.

In this context, she highlights the importance of creating more effective communication channels between the risk and C-suite functions.

“Effective communication is a critical aspect. Too often the way that risk managers communicate on risk is in a way that does not resonate with the C-suite. It is not just looking at what we communicate but also how we communicate.

“Communication is one of the three key areas of focus for the ERM Committee. Effective communication is essential for risk functions to gain access to the senior management levels and to ensure that the decision makers are always fully risk informed and able to make timely decisions,” she said.

FERMA Forum Today is in partnership with Captive Review, part of Newton Media.

Did you get value from this story?  Sign up to our free daily newsletters and get stories like this sent straight to your inbox.