At a board meeting of JGP Chemicals Limited, the directors were discussing some recent negative publicity arising from the accidental emission of a chemical pollutant into the local river. As well as it resulting in a large fi ne from the courts, the leak had created a great deal of controversy in the local community that relied on the polluted river for its normal use (including drinking). A prominent community leader spoke for those affected when she said that a leak of this type must never happen again or JGP would suffer the loss of support from the community. She also reminded JGP that it attracts 65% of its labour from the local community. As a response to the problems that arose after the leak, the JGP board decided to consult an expert on whether the publication of a full annual environmental report might help to mitigate future environmental risks. The expert, Professor Appo (a prominent academic), said that the company would need to establish an annual environmental audit before they could issue a report. He said that the environmental audit should include, in addition to a review and evaluation of JGP’s safety controls, a full audit of the environmental impact of JGP’s supply chain. He said that these components would be very important in addressing the concerns of a growing group of investors who are worried about such things. Professor Appo said that all chemical companies had a structural environmental risk and JGP was no exception to this. As major consumers of natural chemical resources and producers of potentially hazardous outputs, Professor Appo said that chemical companies should be aware of the wide range of ways in which they can affect the environment. CEO Keith Miasma agreed with Professor Appo and added that because JGP was in chemicals, any environmental issue had the potential to affect JGP’s overall reputation among a wide range of stakeholders. When the board was discussing the issue of sustainability in connection with the environmental audit, the fi nance director said that sustainability reporting would not be necessary as the company was already sustainable because it had no ‘going concern’ issues. He said that JGP had been in business for over 50 years, should be able to continue for many years to come and was therefore sustainable. As far as he was concerned, this was all that was meant by sustainability. In the discussion that followed, the board noted that in order to signal its seriousness to the local community and to investors, the environmental audit should be as thorough as possible and that as much information should be made available to the public ‘in the interests of transparency’. It was agreed that contents of the audit (the agreed metrics) should be robust and with little room left for interpretation – they wanted to be able to demonstrate that they had complied with their agreed metrics for the environmental audit. Required:
(c) Defi ne ‘environmental risk’. Distinguish between strategic and operational risks and explain why the environmental risks at JGP are strategic. (10 marks)
参考答案：
Defi ne ‘environmental risk’. Distinguish between strategic and operational risks and explain why the environmental risks at JGP are strategic Defi ne environmental risk An environmental risk is an unrealised loss or liability arising from the effects on an organisation from the natural environment or the actions of that organisation upon the natural environment. Risk can thus arise from natural phenomena affecting the business such as the effects of climate change, adverse weather, resource depletion, and threats to water or energy supplies. Similarly, liabilities can result from emissions, pollution, waste or product liability. Strategic risks These arise from the overall strategic positioning of the company in its environment. Some strategic positions give rise to greater risk exposures than others. Because strategic issues typically affect the whole of an organisation and not just one or more of its parts, strategic risks can potentially involve very high stakes – they can have very high hazards and high returns. Because of this, they are managed at board level in an organisation and form a key part of strategic management. Examples of strategic risks include those affecting products, markets, reputation, supply chain issues and other factors that can affect strategic positioning. In the case of JGP, reputation risk in particular is likely to be one of the most far-reaching risks, and hence one of the most strategic. Operational risks Operational risks refer to potential losses arising from the normal business operations. Accordingly, they affect the day-to-day running of operations and business systems in contrast to strategic risks that arise from the organisation’s strategic positioning. Operational risks are managed at risk management level (not necessarily board level) and can be managed and mitigated by internal control systems. Examples include those risks that, whilst important and serious, affect one part of the organisation and not the whole, such as machinery breakdown, loss of some types of data, injuries at work and building/estates problems. In the specifi c case of JGP, environmental risks are strategic for the following reasons. First, environmental performance affects the way in which the company is viewed by some of its key stakeholders. The case mentions the local community (that supplies employees and other inputs) and investors. The threat of the withdrawal of support by the local community is clearly a threat capable of affecting the strategic positioning of JGP as its ability to attract a key resource input (labour) would be threatened. In addition, the case mentions that a ‘growing group of investors’ is concerned with environmental behaviour and so this could also have potential market consequences. Second, as a chemical company, Professor Appo said that JGP has a ‘structural environmental risk’ which means that its membership of the chemical industry makes it have a higher level of environmental risk than members of other industries. This is because of the unique nature of chemicals processing which can, as JGP found, have a major impact on one or more stakeholders and threaten a key resource (labour supply). Environmental risk arises from the potential losses from such things as emissions and hazardous leaks, pollution and some resource consumption issues. CEO Keith Miasma referred to this risk in his statement about the threat to JGP’s overall reputation. As a major source of potential reputation risk, environmental risk is usually a strategic risk for a chemical company such as JGP.