Who experiences impact risk?
When we set our financial goals, we always face the risk of not achieving those goals. The same is true for impact. For example, what is the likelihood that the employment outcomes for young people will not be sustained? What are the consequences of health outcomes not being delivered quickly enough?
Impact risk is the likelihood that impact will be different than expected, and that the difference will be material from the perspective of:
- people (or the planet) who experience (or don’t experience) impact
- society as a whole, if impact is not delivered as efficiently as it could be, resulting in an opportunity cost of resources, which could have generated more impact for people and the planet
We consider the probability of each of these risks happening and the consequences experienced by all stakeholders if they do. As we collect information to understand the experience of people and the planet, we review our risk assessment and try to reduce the probability of risks materialising. This reduces the severity of the likely consequences.
Enterprises take financial risk seriously because, when performance is worse than expected, they suffer financially. The consequences of impact risk, however, are experienced by other people and the planet and don’t necessarily cause enterprises to suffer financially in the near-term, even if they likely will in the long run. To manage our impact, we therefore focus on which risks people and planet find to be material, not just those that have an obvious financial consequence for the enterprise.
Where the consequences are material for the stakeholder, we manage the impact risk. Materiality can be understood by looking across the dimensions of impact.
For example, a manufacturing company which seeks to provide quality jobs for people with disabilities, targeting at least 60% of its workforce, might carry out its impact risk assessment as follows: