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Linear risks are real

Linear risks are real

The 'Linear Risks' essay demonstrates the real business threats linear economic business practices are creating. These include risks associated with the use of scarce and non-renewable resources; prioritisation and sales of products produced with virgin resources; the failure to collaborate; and failing to innovate or adapt. These are all factors that will negatively impact the ability of organisations to continue business as usual.

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KPMG Nederland

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Linear risks

More and more companies are confronted with ‘Linear Risks’ like price volatility, supply chain failures as well as fines or lawsuits due to changing legislation. This linear approach does not only cause serious business threats, it also hinders our ability to achieve the Sustainable Development Goals, the Paris Agreement, or close the global circular economy gap of 91% . As these risks are grounded in the linear setup of our economy, we see a need to start a deeper dialogue with the financial and business community on the potential implications with a view to explore solutions.
 
This essay, co-authored by Circle Economy, PGGM, KPMG, WBCSD, and EBRD, aims to raise awareness and create a constructive dialogue with the financial and business community to better understand and model ‘Linear Risks’ - the exposure to the effects of linear business practices which will negatively impact an organisation’s ability to continue as a going concern. Businesses face these risks if they utilise scarce and non-renewable resources, prioritise sales of new products, fail to collaborate, and fail to innovate or adapt. If unresolved, these could have serious effects on the financial industry and our global economy.

“The good news is that the circular economy can provide a solution to mitigate these ‘Linear Risks’. The circular economy is an emerging economic concept that provides new business models and strategies to continuously reuse materials and resources to their fullest potential and is aimed at achieving development while operating within the boundaries of our planet.”
– Arnoud Walrecht, senior manager KPMG Sustainability

We call upon all relevant stakeholders to effectively address ‘Linear Risks’. We suggest four distinct follow up measures: 

  1. Collaborate
    to deepen the understanding of ‘Linear Risks’ by building on this essay with risk managers and translate ‘Linear Risks’ into financial risk management language
      
  2. Understand
    the short-term and long-term implications of these 'Linear Risks' and how they influence the business and financial community across various time scales
     
  3. Create
    forums with investors and business stakeholders to test the concept of ‘Linear Risks’ and work towards a practical implementation agenda to integrate ‘Linear Risks’ into established enterprise risk management (ERM) processes
     
  4. Specifically
    address the disclosure challenges of ‘Linear Risks’ and explore how the current movement for disclosure of climate change risks in portfolios can serve as a model to incorporate ‘Linear Risks’.

Building on this essay, we intend to spark further research to develop specific ‘Linear Risks’ metrics and tools that make it easier for investors to account for them in their analysis. And eventually, we hope that ‘Linear Risks’ will become an integral part of decision-making in the financial and business community.
 
Join Circle Economy, PGGM, World Business Council for Sustainable Development and KPMG at the ‘Linear Risks’ Webinar, where you will hear from the experts and you can join the discussion.
 
Tune in on 28 June 2018 at 3 pm CET 

Sign up here.
 

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