“What is the RoI on Enterprise Risk Management?”, is probably the most frequent question clients of Megrow or other stakeholders ask me when we talk about ERM.
The following two points are core to my answer:
Firstly, correlative studies1 have shown that companies with good ERM-practice achieve a valuation that is app 20% higher than their peers with a sub-standard ERM-approach.
Secondly, all major internal rating agencies put significant emphasis on ERM. For instance, under AM Best’s new rating methodology poor ERM-standards can trigger a maximum of four-notch negative drag on the baseline rate. Hence, good ERM contributing to an uplift of the baseline rate will substantially reduce financing costs for the company.
In a nutshell: The returns are measurable and they are very significant!
PS: thanks to Susanna Lam, MD of Acacia Advisory Ltd Hong Kong, for valuable input to this post.
1 Gatzert et al 2016.