The risk landscape for renewables and power in 2023

We have published the eighth edition of the Global Risk Landscape Report. The report examines how senior business leaders around the world approach risk management and how they are responding to the risks that threaten their businesses. The report is based on a survey of 500 C-suite business leaders across Europe, MEA, APAC and the Americas. In this article we provide an outline of the valuable insights for businesses in the renewables and power sectors. I would encourage you to explore the data using our data visualisation tool below and to download and read the full report.

The risk multiplier effect

The ‘big idea’ explored in the Report is the “risk multiplier effect”, a paradigm shift for risk management. It describes the way different risks compound and amplify each other. A business should be able to manage an ‘event’ but may struggle to cope when several manageable ‘events’ occur close together. The risk multiplier effect means businesses face more existential risks than before.

Business leaders are being challenged to focus on mitigating inevitable risk combinations that can threaten their businesses rather than adopt a simply preventative approach.

The idea of the risk multiplier clearly resonates with respondents from the renewables, power and utilities sector. 88% of those respondents somewhat or strongly believing that risks are becoming increasingly interconnected and complex. Additionally, 79% of respondents from the sector believe that the global risk landscape is characterised more by the relationships between risks than by the risks themselves.  

The sector is quite well plugged in to risk, however, as the industry grows, more challenging technology is emerging (for example energy storage) which is more complex to manage. Furthermore, constraints to development in the UK are reducing home-grown investment opportunities, therefore UK investors are taking on more risk by investing overseas, considering newer, less-established technologies and investing earlier in the development cycle than they have done in the past (ie taking on development and construction risk not simply operational risk).

 

“Power prices, interest rates, government policy and support, global political upheaval, taxation, demand shifts, technological change and of course weather patterns have all impacted over recent years and the renewables power and utilities sector has seen how these shifts are often interlinked; like buses they tend to come along in groups.” David Bevan, Partner BDO LLP

Ultimate risk multipliers

Ultimate risk multipliers are the connected risk pairings, or even triple or quadruple threats, which intersect and amplify each other. These ultimate risk multipliers can create an existential threat to businesses. Business interruption × supply chain came out on top as the most powerful risk combination for Renewables and power businesses. Business interruption is also the single risk that the sector felt most unprepared for, closely followed by supply chain issues. 

Businesses need to be aware of the most common risk multipliers and dangerous risk pairs affecting their industries, so they can develop the right strategies to protect themselves from financial, environmental, reputational and workforce impacts.

Chaos as a ladder

Proactive, risk-welcoming management teams are better able to manage and mitigate risk multipliers, and crucially turn risks into opportunities. Our research discovered that companies with a risk officer in the C-Suite are 7.25 times more likely to be risk-welcoming and 2.1 times more likely to take a proactive approach to risk than those without one. This approach involves proactive planning and embracing the opportunities that can arise from chaos.

Industry is a driving factor of whether a company employs senior risk officers. Our research found that in the renewables, power and utilities sector, 71% of respondents say their organisation had a C-suite risk officer (CRO) or similar. Companies with a risk lead in the C-Suite are 2.1 times more likely to take a proactive approach to risk than those without one - 25% of the sector said they are very proactive in dealing with risk.

Only 9% of business leaders from this sector told us that they would categorise their level of risk appetite as risk welcoming. With the majority saying their organisation is risk minimising (46%).

It’s clear that there is more work to do for the sector to move toward a more-risk welcoming approach to risk management. Businesses will benefit from this in the long-term, but it requires a mindset shift toward risk-aware decision-making and innovation.

If you would like to discuss how your organisation approaches risk and can mitigate the risk multipliers, please get in touch.