Few companies have robust risk management frameworks that incorporate measures of how their products and services affect the well-being of consumers or if consumers are being treated fairly, as long as legal exposures are contained. And efforts to adopt triple bottom line approaches to reporting firm performance are only beginning to gain traction. Within Asia, fewer than 10 banking institutions today subscribe to the Equator Principles for assessing and managing the environmental and social risks for projects. Clearly the gap between the existing risk management practices and a whole-of-business approach which fully embraces broader aspects of risks remains large. Regulation and greater shareholder activism will remain important drivers of change, and in my view, so will a new breed of risk managers who effectively integrate traditional and emerging risk perspectives, and who can speak to these perspectives in a compelling and cohesive way to an organisation’s key stakeholders. A third observation that I want to make today relates to the increasing importance of viewing risks over a longer-term horizon, and imagining the unthinkable. I mention these together for a reason. When one is focused on looking both backward and forward over a reasonably long horizon, the universe of what is unthinkable becomes smaller and our vision is less likely to be blinkered by limited experiences of only the most recent past. We are also likely to become more open to broader possibilities of new and emerging risks on the horizon.
In the world of creative arts, it is often said that we are limited only by our imagination. I think the same can be said of risk management. If we can stretch our imaginations a little further, then there is a higher chance that risk management will be more proactive in anticipating future problems, especially problems that we may have never encountered before. This requires risk managers to go beyond estimating the probability of risk events occurring, and allowing a greater role for uncertainties, no matter how remote, to feature more prominently in risk management approaches. While easier said than done, innovations like reverse stress testing and the increasing degree of internal and external collaboration that goes into  2  BIS central bankers’ speeches  constructing stress testing scenarios are positive indications of how firms are responding to this challenge. On this score at least, risk management is increasingly proving to be more of an art than an exact science. Organisations also continue to face significant challenges in efforts to break down risk silos and achieve an integrated view of organisational risks that adequately takes into account operational dependencies and common exposures that can significantly amplify risk outcomes. A key challenge often overlooked is the failure to effectively integrate human resource management strategies with enterprise-wide risk management goals. This can create significant inertia, with organisations often falling back to managing risks in silos as the default position. Successful organisations have recognised that silos are fundamentally a cultural phenomenon.