18.1.1. Who Should Drive Sustainability Parameters?
While the institution’s entire board needs to be involved in adopting and estab¬lishing the sustainability objective and goals, it is critical to ask who should drive this objective and the accompanying goals and policies at the board level. This may sound like a simple question. However, it involves nuances that may have significant implications for ensuring that the sustainability of the institution is addressed objectively and fully, and thus it requires the board’s attention.
There are tradeoffs between sustainability goals and financial goals. How¬ever, once established, there is no choice between driving financial goals that, in turn, address the traditional revenue-driving dimension of risk and driving sustainability goals that address the sustainability-related dimension of risk.
Both must be emphasized and managed simultaneously and distinctly. The need to maintain an emphasis on sustainability goals distinctly is so strong that it needs to have a driving focus independent of financial or earnings goals. Therefore, the critical question for the board of an institution is, who should drive the sustainability management parameters at the board level? Should it be the CEO who is the primary driver of financial goals and risk-management parameters? If so, then how do you ensure a distinct emphasis? Should it be a special committee of the board with the capability to deal with significant risk governance issues? Or, should it be the chairman who must be capable of grasping and driving sustainability management parameters proactively?
Each board needs to address this question, weighing all options along with their pros and cons. Such deliberations constitute the starting point for developing the organization focus for effective sustainability management and bringing about a fundamental change to enhance the ability to survive extreme crises.
18.1.2. What Should Parameters Focus on?
No dialog can begin or take place in a vacuum; it needs an appropriate context. Therefore, before the dialog about objectives and goals begins, there must be an understanding of the structure that causes the need for the sustainability objective and goals in the first place. This requires a way to quantify and express the extreme tail-risk structure. As emphasized early on in this book, to date there is no objective, transparent, and simple measure to quantify exposure from extreme tail risk. This book has offered PML and demonstrated its power as an effective quantitative measure of extreme risk.
Therefore, the PML of the institution—along the lines of the examples discussed previously—needs to be developed to provide the context for the dialog to establish sustainability-management parameters. This includes knowing the total magnitude of PML and fully understanding what makes up PML and how different businesses impact PML in different ways.
18.1.1. Who Should Drive Sustainability Parameters?
While the institution’s entire board needs to be involved in adopting and estab¬lishing the sustainability objective and goals, it is critical to ask who should drive this objective and the accompanying goals and policies at the board level. This may sound like a simple question. However, it involves nuances that may have significant implications for ensuring that the sustainability of the institution is addressed objectively and fully, and thus it requires the board’s attention.
There are tradeoffs between sustainability goals and financial goals. How¬ever, once established, there is no choice between driving financial goals that, in turn, address the traditional revenue-driving dimension of risk and driving sustainability goals that address the sustainability-related dimension of risk.
Both must be emphasized and managed simultaneously and distinctly. The need to maintain an emphasis on sustainability goals distinctly is so strong that it needs to have a driving focus independent of financial or earnings goals. Therefore, the critical question for the board of an institution is, who should drive the sustainability management parameters at the board level? Should it be the CEO who is the primary driver of financial goals and risk-management parameters? If so, then how do you ensure a distinct emphasis? Should it be a special committee of the board with the capability to deal with significant risk governance issues? Or, should it be the chairman who must be capable of grasping and driving sustainability management parameters proactively?
Each board needs to address this question, weighing all options along with their pros and cons. Such deliberations constitute the starting point for developing the organization focus for effective sustainability management and bringing about a fundamental change to enhance the ability to survive extreme crises.
18.1.2. What Should Parameters Focus on?
No dialog can begin or take place in a vacuum; it needs an appropriate context. Therefore, before the dialog about objectives and goals begins, there must be an understanding of the structure that causes the need for the sustainability objective and goals in the first place. This requires a way to quantify and express the extreme tail-risk structure. As emphasized early on in this book, to date there is no objective, transparent, and simple measure to quantify exposure from extreme tail risk. This book has offered PML and demonstrated its power as an effective quantitative measure of extreme risk.
Therefore, the PML of the institution—along the lines of the examples discussed previously—needs to be developed to provide the context for the dialog to establish sustainability-management parameters. This includes knowing the total magnitude of PML and fully understanding what makes up PML and how different businesses impact PML in different ways.
การแปล กรุณารอสักครู่..
