Nigam and Ramos 2011; Olson and Wu 2017; Yilmaz and Flouris 2010). Inevitably,
sustainability provides a continuous improvement and valuable measurement to risk
assessments in identifying unintended consequences that may affect the long-term
business value (COSO 2013; Olson and Wu 2017; World Business Council for
Sustainable Development 2017). The development of risk management from traditional risk management (TRM) to enterprise risk management (ERM) and now with
its emphasis on SRM creates a revolutionary thought in the risk management
development which consequently contributes to both organisational victory and
societal goals. TRM is mainly focused on the pure risk or hazard risk, whereby the
risks are managed in a decentralised manner and its main objective is to prevent
losses. In TRM, risks are managed individually, and there is no framework to guide
the risk management activities (Barton et al. 2002). In the early 1990s, an evolutionary risk management discipline referred to as enterprise risk management (ERM)
reforms the traditional way of managing risks (Farrell and Gallagher, 2015). ERM
considers breaking down the silo approach to managing risks and has caught the
attention of most organisations as a strategic tool to manage all types of risk
exposure across an organisation (Beasley et al. 2015). The differences between
TRM, ERM, and SRM in terms of the nature and scope of risks, time horizon,
management of risks, measurement of risks, and impact and likelihood of risks are
summarised in Table 12.1.
Unlike TRM, ERM looks at a portfolio view of risks supported by a framework to
provide a structure and procedure to manage risks effectively for enhancing shareholder value(Beasley et al. 2005). ERM is a process that manage all types of risk in
an integrated way across the organisation, which typically involve all business units
to meet the company goalss (Pathak et al. 2013). Fundamentally, SRM is an
extension to ERM approach that specifically addresses the emerging risks and
non-quantifiable risks arising from sustainability issues (Lam 2017). The main
motivations behind SRM are to achieve sustained success and to drive improvements in environmental and social performances (Lam and Quinn 2014). Current
emerging business trends contribute to the increase of emerging risks and large-scale
risks that affect company survival (PricewaterhouseCoopers 2014). Some studies
have explored the integration of ERM and sustainability practices. A study by Ahn
(2015) which examined the relationship between ERM efforts and sustainability
using a sample of 1251 companies’ disclosure of ERM and sustainability activities
found a strong positive relationship between the performance indicator, sustainability, and ERM processes in the nonfinancial companies, with Tobin-Q as a measure of
performance. Accordingly, Ahn (2015) discovered that companies engaging in ERM
and sustainability for a longer period were able to grasp more meaningful and valuecreating insights compared to companies which were newly engaged in these
integration.
Another study by Cort and Gudernatch (2014) examined the prioritisation of
environmental and social aspects in the ERM framework to assess and quantify
sustainability risks against traditional financial risks in the oil and gas companies.
Based on the results, the disclosure of risk factors from 40 samples of oil and gas
companies indicated that in practice, sustainability issues were not being captured
fully by their businesses, especially at the risk assessment stage where the companies
12 Meeting the Stakeholder Needs and Sustaining Business Through. . .
197
sustainability provides a continuous improvement and valuable measurement to risk
assessments in identifying unintended consequences that may affect the long-term
business value (COSO 2013; Olson and Wu 2017; World Business Council for
Sustainable Development 2017). The development of risk management from traditional risk management (TRM) to enterprise risk management (ERM) and now with
its emphasis on SRM creates a revolutionary thought in the risk management
development which consequently contributes to both organisational victory and
societal goals. TRM is mainly focused on the pure risk or hazard risk, whereby the
risks are managed in a decentralised manner and its main objective is to prevent
losses. In TRM, risks are managed individually, and there is no framework to guide
the risk management activities (Barton et al. 2002). In the early 1990s, an evolutionary risk management discipline referred to as enterprise risk management (ERM)
reforms the traditional way of managing risks (Farrell and Gallagher, 2015). ERM
considers breaking down the silo approach to managing risks and has caught the
attention of most organisations as a strategic tool to manage all types of risk
exposure across an organisation (Beasley et al. 2015). The differences between
TRM, ERM, and SRM in terms of the nature and scope of risks, time horizon,
management of risks, measurement of risks, and impact and likelihood of risks are
summarised in Table 12.1.
Unlike TRM, ERM looks at a portfolio view of risks supported by a framework to
provide a structure and procedure to manage risks effectively for enhancing shareholder value(Beasley et al. 2005). ERM is a process that manage all types of risk in
an integrated way across the organisation, which typically involve all business units
to meet the company goalss (Pathak et al. 2013). Fundamentally, SRM is an
extension to ERM approach that specifically addresses the emerging risks and
non-quantifiable risks arising from sustainability issues (Lam 2017). The main
motivations behind SRM are to achieve sustained success and to drive improvements in environmental and social performances (Lam and Quinn 2014). Current
emerging business trends contribute to the increase of emerging risks and large-scale
risks that affect company survival (PricewaterhouseCoopers 2014). Some studies
have explored the integration of ERM and sustainability practices. A study by Ahn
(2015) which examined the relationship between ERM efforts and sustainability
using a sample of 1251 companies’ disclosure of ERM and sustainability activities
found a strong positive relationship between the performance indicator, sustainability, and ERM processes in the nonfinancial companies, with Tobin-Q as a measure of
performance. Accordingly, Ahn (2015) discovered that companies engaging in ERM
and sustainability for a longer period were able to grasp more meaningful and valuecreating insights compared to companies which were newly engaged in these
integration.
Another study by Cort and Gudernatch (2014) examined the prioritisation of
environmental and social aspects in the ERM framework to assess and quantify
sustainability risks against traditional financial risks in the oil and gas companies.
Based on the results, the disclosure of risk factors from 40 samples of oil and gas
companies indicated that in practice, sustainability issues were not being captured
fully by their businesses, especially at the risk assessment stage where the companies
12 Meeting the Stakeholder Needs and Sustaining Business Through. . .
197