In a rapidly-evolving risk environment, many are asking whether their infrastructure assets are safe enough and resilient enough. The public’s awareness and interest have never been so high.
Recent events suggest that they might have good reason to worry. Many of the wildfires that ravaged California this past year were thought to have been contributed to by poorly maintained power lines and worsened by climate change; this past year, local distribution companies were forced to shut down services to communities when the wind blew too hard.
Other infrastructure failures have also shaken confidence; the Genoa bridge collapse in Italy, the failure of the Brumadinho tailings dam in Brazil, the two fatal passenger aircraft crashes due to technology malfunctions, an unknown number of data breaches and cyber-attacks, countless rail and road accidents — it’s not surprising that people are feeling less confident about the safety and resilience of their infrastructure.
As a result, we are seeing governments and asset owners begin to put a much larger emphasis on safety, maintenance and resilience, right across the asset lifecycle. These factors are also finding their way into investment decision-making.
From new asset management standards at the local level to global initiatives such as the Coalition for Climate Resilient Investment announced at the most recent UN Climate Action Summit, asset owners are feeling pressure from the public for improved resilience.
Resilience, at its core, is the ability to reduce the likelihood and impact of “extreme” events. These 'extreme' events represent 'disruptive risk', which is a risk so severe that it threatens the long term survivability of the asset or business. Typically, events that turn into disruptive risks are initially identified as high-consequence risks, but the expected low probability of the risk occurring does not usually precipitate the necessary business planning required for deploying appropriate mitigations.
However, as forces drive the probability of these events higher (i.e., climate change, aging assets, increased urbanization), a business lacking planning for the extreme event is potentially exposed to the full consequence of the risk. Thus, this results in disruptive risk for the business and the need for resilience planning. Because disruptive risks are often ambiguous, complex, and difficult to identify, assessing and responding to them requires enhancing certain capabilities within an organization.
Becoming resilient starts by aligning the business planning preparations needed with a wider vision that encompasses the business’s strategy, mission, vision and values while addressing vulnerabilities. These preparations can be put in place by developing formal structures such as reporting lines and committees specifically charged with implementing resilience strategies. Leading organizations utilize data to identify and evaluate risks and propose solutions. And ultimately, a resilient business must make risk-informed investment planning decisions that prioritizes capital deployments to mitigate disruptive risk in an efficient and timely manner.
Pressure is also being applied by investors, who are becoming increasingly concerned about the growing range of risks they face (see Trend 3, Risk perceptions and realities change, for more on this). And that, in turn, is forcing asset owners to think much more seriously about how they are identifying, measuring and managing their risks.
This year, expect to see asset owners and investors continue to go beyond traditional asset management approaches to instead think much more holistically about how they ensure ongoing safety and resilience across the asset lifecycle.
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