A panel of four experts provided information on top trending risks to a sell-out crowd in Toronto on April 10th. “Hot Topics in D & O Risk and Insurance Climate Change, Respectful Workplace (#MeToo), Cannabis and Blockchain & Cryptocurrency” hosted by our National Strategic partners, Marsh Canada.

1. Climate change presented by Karen Lockridge – Principal, Responsible Investment, Mercer Consulting

Directors’ climate liability exposure may increase substantially due to a wide disparity between boards and the expectations of key stakeholders regarding climate risk. Failure to proactively manage environmental risks is becoming increasingly newsworthy.

The 2019 World Economic Global Risk Report found that climate change and related environmental concerns are perceived as dominating the risk landscape.

This is reflected in increased investor engagement on these topics. The Report is an annual survey of broad stakeholder groups including business, academia, investors and civil society.

By contrast, the 2018 Global Network of Director Institutes found that only 17% of responding directors viewed climate change as very relevant to their corporation or role as director, while 30% thought it was not at all relevant.

Karen Lockridge, a Principal with Mercer’s Responsible Investment team in Toronto, suggested that boards follow the road-map provided by the Task Force on Climate-related Financial Disclosures.

Described as the most significant development since the Paris Agreement, the Taskforce was established when Mark Carney and a group of 20 other Finance Ministers and central bankers realized that there was insufficient data to assess the risk that climate change poses to the global economy. Led by Michael Bloomberg and 32 members from a broad range of multi-nationals including Mercer, Tata, Unilever and Bank of America, the Taskforce represented recognized names across the whole value chain in terms of corporate reporting. Their recommendations were summarized as follows:

  • Are our strategies and operations at risk, given expected climate changes and the drive to a low carbon economy?
  • Is the organization’s governance of climate-related risks and opportunities robust and effective?
  • Does the organization’s strategy and financial planning accurately assess and reflect the actual and potential impacts of climate-related risks and opportunities?
  • Does the organization have a process in place to identify, assess, quantify, and manage climate-relate risks?
  • Is the organization using metrics and targets to assess and manage relevant climate-related risks and opportunities?

2. Respectful Workplace (#MeToo) presented by Ilana Hechter – Partner, Mercer Consulting

There is a similar gap in beliefs as to whether workplace bullying and harassment is a material risk. But building a respectful workplace is about more than checking a box on diversity, said Hechter. According to Statistics Canada, 60% of employees report having experienced harassment and bullying at work. By contrast, the Gandalf Group’s C-Suite survey found that nine out of ten senior executives in Canada do not believe that sexual harassment is a problem. Hechter pointed out that this kind of disparity t can drive a #MeToo risk.

Additionally, this gap between executive and worker perceptions can exacerbate employee attraction and retention risks, particularly if the company requires a pipeline of highly skilled millennials. Focusing on diversity and inclusion as a part of organizational culture has an economic impact on performance. As Hechter stated, “diversity is being asked to the dance; inclusion is being asked to dance”, a small but impactful difference. The trend moving from a more traditional engagement contract to a “thrive” contract focuses on how to ensure your employees perform the best for the short period of time they are likely to stay. Providing them with a sense of purpose is critical as money is not the key driver. Employees value working where they feel respected and included.

Hechter encouraged board members to ask:

  • Does the organization have a diversity and inclusion policy?
  • Is there a reporting process?
  • Are expectations clearly articulated to permit insistence between locations and business lines?
  • Are leaders – especially middle managers who manage teams – invented to implement and achieve diversity and inclusion goals?

3. Blockchain & Cryptocurrency presented by Jennifer Hustwitt – Senior Vice President, Marsh & McLennan Companies

A global patchwork of crypto-asset regulatory requirements is developing, which creates uncertainty in terms of the international flow of business. Board members should monitor efforts to achieve alignment and consistency in international regulation necessary to support an international trading infrastructure.

Understanding these changes and the regulations that are starting to unfold as a result of regulatory oversight of key fin-tech players is critical for boards. To help boards and senior executive come up to speed, Marsh launched Crypto-Assets and Blockchain Technology: On the Brink of Legitimacy? at the 2019 Davos World Economic Forum.

Tokenization of cryptocurrencies is now allowing individuals to own fractions of assets. The future of the user experience in a seamless payment experience is ever evolving in Silicon Valley. The development of seamless app-based payment technologies has given boards the opportunity to review whether digitization of financial assets should be viewed by their organization as a strategic differentiator.

A key risk factor is the global shortage of blockchain-specific software and network security experts. Regulators are signaling that reliance on current cyber-security resources and techniques may be insufficient to manage risks such as anti-money laundering/know your client in the crypto-currency space. With compliance officers moving into cryptocurrency boards we are seeing positive indicators that further regulations and formalization in the industry is coming—and that the industry as a whole is here to stay.

Scandals and increased regulatory scrutiny are driving an enhanced focus on licenses. Organizations are advised to undertake a rigorous evaluation of licensing requirements in each relevant jurisdiction, including at the state and provincial level.

4. Cannabis presented by Dianne Morrison – Senior Vice President, FINPRO, Marsh Canada Limited

Legal in Canada since the early 2000’s (medically) and now legal nationwide recreationally, the cannabis industry is a disruptive force. It is a new and rapidly evolving industry that has the potential to take market share from numerous fields including alcohol, pain remedies, sleep aids, sports aids and wellness products. Dianne Morrison advised that boards need to ensure that their organization has considered whether cannabis will disrupt their organizational strategy and developed appropriate mitigating tactics.

Boards should also monitor the risks that arise from the inconsistent regulatory frameworks for cannabis. While Canada regulates cannabis as a pharmaceutical product, there is inconsistency in approach between the 33 American states where cannabis is legal.

Cannabis, of course, remains illegal in the US at the federal level. Publicly traded companies with cannabis businesses need to divest their US assets at the current time or risk being delisted.

Where there is exposure to cannabis-related risks, board members should ensure that the company has appropriate Directors & Officers (D&O) insurance. US based insurers or their Canadian subsidiaries cannot operate in this space at this time. Insurance companies want to see how claims develop before fully defining D&O insurance, so for now terms and conditions may be more restrictive and premiums higher, but insurance products are now available.

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