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DynamicRiskAssessment
&
theSDGs
September 2017
Gaya Branderhorst, DRA Lead in the Americas
2© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Introduction
Source: 123RF.com
DynamicRisk
Assessment
4© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Merrill Lynch 2007 $ 92m 95% $730m
JP Morgan 2007 $103m 99% $1.62bn
Goldman Sachs 2007 $134m 95% $2.12bn
Citigroup 2007 $163m 99% $2.5bn
Source: Pablo Triana. The Number That Killed Us. E Books: p. 146
$ 41bn
$ 8.4bn
$ 86bn
$102bn
Areourmodelsvalid?
5© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
BrettonWoods
Source: This Time is Different. Eight Centuries of Financial Folly. Carmen M. Reinhart & Kenneth S. Rogoff. p. 205
6© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
1950 - 1970 1970 – 1990 1990 – 2010
< 10 countries 17 countries 71 countries
Gold standard Fiat system € ¥ $ +
Isolation Regulation Globalisation
Baby boom Social security Fiscal debt
No derivatives CBOE + ≈ $680 tn
(GDP $62 tn)
Fixed exchange rates 56 floating exchange rates
(100 fixed)
100 floating
(82 limited)
Historical cost EU gov’s sold $100bn state
assets
Global
environmental boundaries
reached
Climate change
Rising inequality
Rising nationalism
Source: Various; Terblanche, A.B.
Natureoftheshift:subtleevolutionTheInterconnected&ChangingWorld
Localized environmental
destruction
Widening tax base
Low level inequality
Rising globalism
7© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Source (External Forces): Terblanche, A.B.
Likelihood of occurrence of material financial statement errorLow High
High
Potentialimpact
Traditionalviewofrisk
8© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Source: Terblanche, A.B. & Scheuber, C.M.S.
Risk,withexpectedinterconnectedness
9© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Expertelicitation
• Expert elicitation was developed in 1950’s by the U.S. army.
• It is the synthesis of opinions of human authorities of a subject where there is uncertainty due
to insufficient or a lack of data.
• Expert elicitation has practically universal applicability, which has made it increasingly popular
as a risk management method.
• 21st century examples of it use include climate change and environmental health impact
assessments.Sources: Surowiecki, J. (2005). The Wisdom of Crowds. New York, NY: Doubleday; Anchor ; Hong, L. & Page, S. C. (2004) Groups of diverse problem
solvers can outperform groups of high-ability problem solvers. Michigan Business School and Complex Systems University of Michigan, ; Knol, A. B., Slottje,
P., Sluijs, J. P. & Lebret, E. (2010). The use of expert elicitation in environmental health impact assessment: a seven step procedure. Environmental Health,
9(19) ; Usher, W. & Strachan, N. (2013). An expert elicitation of climate, energy and economic uncertainties. Energy Policy(61), 811-821,
https://doi.org/10.1016/j.enpol.2013.06.110
DRA uses human beings for forecasting because unlike data, they are capable of looking forward.
10© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
FromTraditionalviewtoNetworkview
Traditional, two-dimensional risk map Inter-connected view
Likelihood and seventy of this
cluster exceeds those of this
single risk
This individually insignificant risk
has hidden systemic significance:
it triggers many other risks into
existence, all of them more
significant than itself
Likelihood of occurrence of risk
The individually most
significant risk exhibits
low levels of expected
contagion
HighLow
High
Potentialimpact
Likelihood
Severity
Connectivity strength:
Low
Medium
High
DRAforSDG
Strategysetting
12© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
ApplicationofDRA
• Sustainability science uses a ‘system dynamic approach’
• One cannot look at sustainability trends and not notice: everything is connected.
Source: Bert de Vries (2010). Sustainability Science.
Photographs by Jodi Cobb, National Geographic; Emory Kristof, National Geographic;
Mark Thiessen, National Geographic
13© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Thesensingcapacityofyourorganization
Source: Slide by lsharp . Adapted under Creative Commons CC BY-AS 4.0
“We have to change almost everything about the way in which we meet our
material needs. And quickly.
But we are in the wrong organizational vehicle to make that change. Our
hierarchical structures hinder the sensing of emergent issues and thus
innovation.”
Leith Sharp. Professor Lecturer Sustainability Leadership in the 21st Century, Harvard University.
The bulk of an organizations’ sensing
capacity resides here, but it is
routinely cut off from decision-making,
which happens at the top.
14© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
ApplicationtoSDGs
DRA on the SDGs
• Not obtaining each SDG is a risk (or: node).
• Meaning: the risk network has 17 nodes here.
• Experts within the client will fill in the survey. KPMG calculates the network and its properties.
• Output will be: Risk network, cluster, velocity, and their interaction (i.e., how does the network
flow), and DRA interpretation/advise based on these results.
15© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Likelihood
1.SeverityandLikelihood
Severity
high
high
Life on Land
Clean Water and Sanitation
Affordable and Clean Energy
Zero hunger
No poverty
Reduced inequalities
Partnerships for the Goals
Climate Action
Decent work and Economic Growth
Industry, Innovation and Infrastructure
Sustainable cities and Communities
Peace, Justice and Strong Institutions
Gender Equality
Quality Education
Responsible consumption and Production
STYLIZED IMPRESSION OF NETWORK DEPICTION. THIS NETWORK IS COMPLETELY HYPOTHETICAL. NO EXPERT ELICITATION WAS USED FOR ITS CREATION. POSITIONS AND NODE NAMES
HAVE BEEN SELECTED RANDOMLY, AND SO NO REASONABLE CONCLUSIONS CAN BE DRAWN FROM THIS EXAMPLE.
16© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Relative Impact
HighMediumLow
Relative Inter-
Connectedness
Low/Nil* High
Life on Land
Clean Water and
Sanitation
Affordable and
Clean Energy
Zero hunger
No poverty Reduced inequalities
Partnerships for the Goals
Climate Action
Decent work and
Economic Growth
Industry, Innovation and
Infrastructure
Sustainable cities and
Communities
Peace, Justice and
Strong Institutions
Gender Equality
Quality Education
Responsible consumption and
Production
Risk Cluster 1
Risk Cluster 2
Risk Cluster 3
Risk Cluster 4
Risk Cluster 5
Good Health and Well-being
Life below water
Which SDGs are especially linked together in the case of the client, and might be underestimated in combined impact?
2.NetworkandClusters
STYLIZED IMPRESSION OF NETWORK DEPICTION. THIS NETWORK IS COMPLETELY HYPOTHETICAL. NO EXPERT ELICITATION WAS USED FOR ITS CREATION. POSITIONS AND NODE NAMES IN THE NETWORK
HAVE BEEN SELECTED RANDOMLY, AND SO NO REASONABLE CONCLUSIONS CAN BE DRAWN FROM THIS EXAMPLE.
17© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
AndtheirCombinedImpact
Energy-food-water
Risk Cluster
STYLIZED IMPRESSION OF NETWORK DEPICTION. THIS NETWORK IS COMPLETELY HYPOTHETICAL. NO EXPERT ELICITATION WAS USED FOR ITS CREATION. POSITIONS AND NODE NAMES IN THE NETWORK
HAVE BEEN SELECTED RANDOMLY, AND SO NO REASONABLE CONCLUSIONS CAN BE DRAWN FROM THIS EXAMPLE.
18© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Risk cannot go wrong Risk that has to go right
Life on Land
Clean Water and Sanitation
Affordable and Clean Energy
Zero hunger
No poverty
Reduced inequalities
Partnerships for the Goals
Climate Action
Decent work and Economic Growth
Industry, Innovation and Infrastructure
Sustainable cities and Communities
Peace, Justice and Strong Institutions
Gender Equality
Quality Education
Responsible consumption and Production
Risk Cluster 1
Risk Cluster 2
Risk Cluster 3
Risk Cluster 4
Risk Cluster 5
3.Systemicallymostinfluentialandinfluenced risks
Which SDG risks are most influential throughout the organization, and which are most vulnerable?
STYLIZED IMPRESSION OF NETWORK DEPICTION. THIS NETWORK IS COMPLETELY HYPOTHETICAL. NO EXPERT ELICITATION WAS USED FOR ITS CREATION. POSITIONS AND NODE NAMES IN THE NETWORK
HAVE BEEN SELECTED RANDOMLY, AND SO NO REASONABLE CONCLUSIONS CAN BE DRAWN FROM THIS EXAMPLE.
19© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
4.Velocity
Velocity
Connections
Top 5 Risks in terms of Centrality - Cause
Top 5 Risks in terms of Centrality - Effect
12 Months 24 Months
1
2
3
4
5
6
7
8
9
Life on Land
Clean Water and Sanitation
Affordable and Clean Energy
Zero hunger
No poverty
Reduced inequalities
Partnerships for the Goals
Climate Action
Decent work and Economic Growth
Industry, Innovation and Infrastructure
Sustainable cities and Communities
Peace, Justice and Strong Institutions
Gender Equality
Quality Education
Responsible consumption and Production
STYLIZED IMPRESSION OF NETWORK DEPICTION. THIS NETWORK IS COMPLETELY HYPOTHETICAL. NO EXPERT ELICITATION WAS USED FOR ITS CREATION. POSITIONS AND NODE NAMES IN THE NETWORK
HAVE BEEN SELECTED RANDOMLY, AND SO NO REASONABLE CONCLUSIONS CAN BE DRAWN FROM THIS EXAMPLE.
20© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
• Identify participants, based on
certain characteristics and
expertise.
• Interview, workshops, and survey.
• Arrive at forward-looking
assessments for organization's
risks
Network mathExpert Elicitation
Network depiction
& characteristics
Other methods
• Run KPMG proprietary
mathematical calculations on
input form experts
• Using academic peer-reviewed
network analysis from
researchers at Bank of England,
federal Reserve, and ECB,
amongst others.
• Client specific risk network.
• Analysis performed on network,
indicating key clusters, opportunities, and
vulnerabilities.
• Opportunities and vulnerabilities in
network indicate focus areas for core
business strategy and philanthropy,
respectively.
After coherent strategy has been set, this can be planned out subsequently by selecting tools and designing policies to
monitor progress. This is where other methods come in, such as True Cost Accounting, D&A and Big Data, for monitoring and
lower-level decision-making.
DRAprocess
21© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
DRAResults
• Forward-looking approach in an increasingly interconnected, uncertain and
dynamic world.
• Based on the latest academic works in finance, mathematics, as well as the
social sciences, providing the credibility to convince shareholders and
investors of the potential in shared value, including financial potential.
• Comprehensive and quantitative analysis to determine strategic focus for
realizing this potential without significantly damaging short-term profitability,
while taking into account the interrelated nature of the SDGs, the internal
corporate environment, as well as the world that the client does business in.
• An organization can base its core strategy, as well as philanthropic focus on
those, so that the entire company, from R&D to the C-suite to the charity
department, is doing their part in making the most of the organizations’
internal and external connections.
Thankyou
© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of
independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
All rights reserved.
The KPMG name and logo are registered trademarks or trademarks of KPMG International.
The information contained herein is of a general nature and is not intended to address the circumstances of any particular
individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such
information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on
such information without appropriate professional advice after a thorough examination of the particular situation.
kpmg.com/socialmedia

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A network view on the SDGs

  • 2. 2© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Introduction Source: 123RF.com
  • 4. 4© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Merrill Lynch 2007 $ 92m 95% $730m JP Morgan 2007 $103m 99% $1.62bn Goldman Sachs 2007 $134m 95% $2.12bn Citigroup 2007 $163m 99% $2.5bn Source: Pablo Triana. The Number That Killed Us. E Books: p. 146 $ 41bn $ 8.4bn $ 86bn $102bn Areourmodelsvalid?
  • 5. 5© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. BrettonWoods Source: This Time is Different. Eight Centuries of Financial Folly. Carmen M. Reinhart & Kenneth S. Rogoff. p. 205
  • 6. 6© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 1950 - 1970 1970 – 1990 1990 – 2010 < 10 countries 17 countries 71 countries Gold standard Fiat system € ¥ $ + Isolation Regulation Globalisation Baby boom Social security Fiscal debt No derivatives CBOE + ≈ $680 tn (GDP $62 tn) Fixed exchange rates 56 floating exchange rates (100 fixed) 100 floating (82 limited) Historical cost EU gov’s sold $100bn state assets Global environmental boundaries reached Climate change Rising inequality Rising nationalism Source: Various; Terblanche, A.B. Natureoftheshift:subtleevolutionTheInterconnected&ChangingWorld Localized environmental destruction Widening tax base Low level inequality Rising globalism
  • 7. 7© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Source (External Forces): Terblanche, A.B. Likelihood of occurrence of material financial statement errorLow High High Potentialimpact Traditionalviewofrisk
  • 8. 8© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Source: Terblanche, A.B. & Scheuber, C.M.S. Risk,withexpectedinterconnectedness
  • 9. 9© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Expertelicitation • Expert elicitation was developed in 1950’s by the U.S. army. • It is the synthesis of opinions of human authorities of a subject where there is uncertainty due to insufficient or a lack of data. • Expert elicitation has practically universal applicability, which has made it increasingly popular as a risk management method. • 21st century examples of it use include climate change and environmental health impact assessments.Sources: Surowiecki, J. (2005). The Wisdom of Crowds. New York, NY: Doubleday; Anchor ; Hong, L. & Page, S. C. (2004) Groups of diverse problem solvers can outperform groups of high-ability problem solvers. Michigan Business School and Complex Systems University of Michigan, ; Knol, A. B., Slottje, P., Sluijs, J. P. & Lebret, E. (2010). The use of expert elicitation in environmental health impact assessment: a seven step procedure. Environmental Health, 9(19) ; Usher, W. & Strachan, N. (2013). An expert elicitation of climate, energy and economic uncertainties. Energy Policy(61), 811-821, https://doi.org/10.1016/j.enpol.2013.06.110 DRA uses human beings for forecasting because unlike data, they are capable of looking forward.
  • 10. 10© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. FromTraditionalviewtoNetworkview Traditional, two-dimensional risk map Inter-connected view Likelihood and seventy of this cluster exceeds those of this single risk This individually insignificant risk has hidden systemic significance: it triggers many other risks into existence, all of them more significant than itself Likelihood of occurrence of risk The individually most significant risk exhibits low levels of expected contagion HighLow High Potentialimpact Likelihood Severity Connectivity strength: Low Medium High
  • 12. 12© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. ApplicationofDRA • Sustainability science uses a ‘system dynamic approach’ • One cannot look at sustainability trends and not notice: everything is connected. Source: Bert de Vries (2010). Sustainability Science. Photographs by Jodi Cobb, National Geographic; Emory Kristof, National Geographic; Mark Thiessen, National Geographic
  • 13. 13© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Thesensingcapacityofyourorganization Source: Slide by lsharp . Adapted under Creative Commons CC BY-AS 4.0 “We have to change almost everything about the way in which we meet our material needs. And quickly. But we are in the wrong organizational vehicle to make that change. Our hierarchical structures hinder the sensing of emergent issues and thus innovation.” Leith Sharp. Professor Lecturer Sustainability Leadership in the 21st Century, Harvard University. The bulk of an organizations’ sensing capacity resides here, but it is routinely cut off from decision-making, which happens at the top.
  • 14. 14© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. ApplicationtoSDGs DRA on the SDGs • Not obtaining each SDG is a risk (or: node). • Meaning: the risk network has 17 nodes here. • Experts within the client will fill in the survey. KPMG calculates the network and its properties. • Output will be: Risk network, cluster, velocity, and their interaction (i.e., how does the network flow), and DRA interpretation/advise based on these results.
  • 15. 15© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Likelihood 1.SeverityandLikelihood Severity high high Life on Land Clean Water and Sanitation Affordable and Clean Energy Zero hunger No poverty Reduced inequalities Partnerships for the Goals Climate Action Decent work and Economic Growth Industry, Innovation and Infrastructure Sustainable cities and Communities Peace, Justice and Strong Institutions Gender Equality Quality Education Responsible consumption and Production STYLIZED IMPRESSION OF NETWORK DEPICTION. THIS NETWORK IS COMPLETELY HYPOTHETICAL. NO EXPERT ELICITATION WAS USED FOR ITS CREATION. POSITIONS AND NODE NAMES HAVE BEEN SELECTED RANDOMLY, AND SO NO REASONABLE CONCLUSIONS CAN BE DRAWN FROM THIS EXAMPLE.
  • 16. 16© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Relative Impact HighMediumLow Relative Inter- Connectedness Low/Nil* High Life on Land Clean Water and Sanitation Affordable and Clean Energy Zero hunger No poverty Reduced inequalities Partnerships for the Goals Climate Action Decent work and Economic Growth Industry, Innovation and Infrastructure Sustainable cities and Communities Peace, Justice and Strong Institutions Gender Equality Quality Education Responsible consumption and Production Risk Cluster 1 Risk Cluster 2 Risk Cluster 3 Risk Cluster 4 Risk Cluster 5 Good Health and Well-being Life below water Which SDGs are especially linked together in the case of the client, and might be underestimated in combined impact? 2.NetworkandClusters STYLIZED IMPRESSION OF NETWORK DEPICTION. THIS NETWORK IS COMPLETELY HYPOTHETICAL. NO EXPERT ELICITATION WAS USED FOR ITS CREATION. POSITIONS AND NODE NAMES IN THE NETWORK HAVE BEEN SELECTED RANDOMLY, AND SO NO REASONABLE CONCLUSIONS CAN BE DRAWN FROM THIS EXAMPLE.
  • 17. 17© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. AndtheirCombinedImpact Energy-food-water Risk Cluster STYLIZED IMPRESSION OF NETWORK DEPICTION. THIS NETWORK IS COMPLETELY HYPOTHETICAL. NO EXPERT ELICITATION WAS USED FOR ITS CREATION. POSITIONS AND NODE NAMES IN THE NETWORK HAVE BEEN SELECTED RANDOMLY, AND SO NO REASONABLE CONCLUSIONS CAN BE DRAWN FROM THIS EXAMPLE.
  • 18. 18© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Risk cannot go wrong Risk that has to go right Life on Land Clean Water and Sanitation Affordable and Clean Energy Zero hunger No poverty Reduced inequalities Partnerships for the Goals Climate Action Decent work and Economic Growth Industry, Innovation and Infrastructure Sustainable cities and Communities Peace, Justice and Strong Institutions Gender Equality Quality Education Responsible consumption and Production Risk Cluster 1 Risk Cluster 2 Risk Cluster 3 Risk Cluster 4 Risk Cluster 5 3.Systemicallymostinfluentialandinfluenced risks Which SDG risks are most influential throughout the organization, and which are most vulnerable? STYLIZED IMPRESSION OF NETWORK DEPICTION. THIS NETWORK IS COMPLETELY HYPOTHETICAL. NO EXPERT ELICITATION WAS USED FOR ITS CREATION. POSITIONS AND NODE NAMES IN THE NETWORK HAVE BEEN SELECTED RANDOMLY, AND SO NO REASONABLE CONCLUSIONS CAN BE DRAWN FROM THIS EXAMPLE.
  • 19. 19© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 4.Velocity Velocity Connections Top 5 Risks in terms of Centrality - Cause Top 5 Risks in terms of Centrality - Effect 12 Months 24 Months 1 2 3 4 5 6 7 8 9 Life on Land Clean Water and Sanitation Affordable and Clean Energy Zero hunger No poverty Reduced inequalities Partnerships for the Goals Climate Action Decent work and Economic Growth Industry, Innovation and Infrastructure Sustainable cities and Communities Peace, Justice and Strong Institutions Gender Equality Quality Education Responsible consumption and Production STYLIZED IMPRESSION OF NETWORK DEPICTION. THIS NETWORK IS COMPLETELY HYPOTHETICAL. NO EXPERT ELICITATION WAS USED FOR ITS CREATION. POSITIONS AND NODE NAMES IN THE NETWORK HAVE BEEN SELECTED RANDOMLY, AND SO NO REASONABLE CONCLUSIONS CAN BE DRAWN FROM THIS EXAMPLE.
  • 20. 20© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. • Identify participants, based on certain characteristics and expertise. • Interview, workshops, and survey. • Arrive at forward-looking assessments for organization's risks Network mathExpert Elicitation Network depiction & characteristics Other methods • Run KPMG proprietary mathematical calculations on input form experts • Using academic peer-reviewed network analysis from researchers at Bank of England, federal Reserve, and ECB, amongst others. • Client specific risk network. • Analysis performed on network, indicating key clusters, opportunities, and vulnerabilities. • Opportunities and vulnerabilities in network indicate focus areas for core business strategy and philanthropy, respectively. After coherent strategy has been set, this can be planned out subsequently by selecting tools and designing policies to monitor progress. This is where other methods come in, such as True Cost Accounting, D&A and Big Data, for monitoring and lower-level decision-making. DRAprocess
  • 21. 21© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. DRAResults • Forward-looking approach in an increasingly interconnected, uncertain and dynamic world. • Based on the latest academic works in finance, mathematics, as well as the social sciences, providing the credibility to convince shareholders and investors of the potential in shared value, including financial potential. • Comprehensive and quantitative analysis to determine strategic focus for realizing this potential without significantly damaging short-term profitability, while taking into account the interrelated nature of the SDGs, the internal corporate environment, as well as the world that the client does business in. • An organization can base its core strategy, as well as philanthropic focus on those, so that the entire company, from R&D to the C-suite to the charity department, is doing their part in making the most of the organizations’ internal and external connections.
  • 23. © 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. kpmg.com/socialmedia

Notas del editor

  1. This is what leaders of all organizations face: high, continuous, and sometimes contradicting demands from all different stakeholders. Managing all these demands is walking a fine line, which in todays changing world is not a straight one.
  2. Dynamic Risk Assessment is new method that allows our clients to map their risk/opportunity network. Dynamic Risk Assessment (DRA) combines the power of mathematics with human intuition in order to come to a more forward-looking way to quantify systemic risk. I will start with a summary of the DRA method, and then make concrete what DRA can do for SDG strategy setting within businesses.
  3. The Genesis of DRA stems from the Global Financial crisis of 2007-2008. The biggest financial institutions, regulators, and Credit Rating Agencies, all with very smart people working in them, did not see the systemic risks until it was too late. Our models, with their seductive level of certainty, had done little more than lull us into a false sense of safety. So, in 2009, some people started to wonder how we can predict the future in a better way.
  4. This led to the insight that many of our models, such as VaR, has been tested on a period of unusable stability. We can call it abnormal normality (As a side note: remember, normality was also an assumption made on distribution of errors in the models on slide 4). It is not the world we live in today.
  5. Our world is increasingly interconnected. Technologically, financially, socially, and of course environmentally. An increasingly interconnected world is also an inherently dynamic, unstable, and thus unpredictable world.
  6. So why do we still often view risk in this way? As if a risk occurs in isolation? As if its impact and likelihood are constants?
  7. DRA supplements the old way of looking at risks with an a network view. Because risks do no occur in isolation, they influence each other.
  8. How do we arrive at the network? We use expert elicitation. ONE expert is about as accurate as a dart-throwing monkey. However, science tells us that A GROUP of experts, a diverse group that is, is the best forecaster you can get in an unstable world. The World Economic Forum sues expert elicitation as well for their Annual Risk Report, for example.
  9. Once we have the connection overview, and the forward-looking input form participants, only then do we apply mathematics in order to arrive at metrics usable to base business decisions on.
  10. DRA has already been successfully applied by KPMG to major clients in both Audit and Advisory. DRA is industry agnostic, and has been applied in U.S., Europe, Japan, Australia and New Zealand, with interest from Canada, South Africa, and Brazil. Typically clients have been those that have learned relatively early on (sometimes the hard way) the importance of connection and how they can be impacted by external forces,. Why apply DRA to the SDGs? The dynamic systems thinking that is at the DRA’s core is really applicable to sustainability challenges. Relationships aren’t stable, and they’re not predictable based on past data. We know that not achieving the Paris accord, for example, is going to be harmful, but nobody knows exactly how the climate change.  
  11. Secondly, the use of expert elicitation aligns with major sustainability trends. This goes being the theme of inclusivity. It goes to the latest insights on how we need to organize ourselves. The notion of iterative policy setting, of the need for enhanced communication and collaboration. To be nimble and resilient, rather then dominate and stick to top-down strategies. Current hierarchical structure can get too focused on self-preservation. By talking to a diverse group of experts throughout the organization, we tap into what Harvard professor Leith Sharp calls the “sensing capacity” of an organization, allowing leadership access to their knowledge and intuition so they can respond to emerging issues quicker.
  12. What will the output of DRA on the SDGs look like?
  13. Firstly, we have the old familiar look at risk. Please note that the nodes in this graph have been plotted randomly, for illustrative purposes only. No conclusion whatsoever can be drawn from this particular plot.
  14. A cluster is a group of risks that tend to occur together. So when one risk materializes, the likelihood of the other risk increases as well.
  15. The cluster analysis will help you avoid underestimating how the combined impact of sustainability trends hurt your business. We saw how this happened in the financial crisis, and we believe that the underestimation from many companies of the cluster risk stemming from sustainability challenges is real threat to economic stability today as well.
  16. The centrality part of the analysis tells us which risk (or: nodes) are most influential or influenced. The nodes that are most influential have the most effect within the network. In other words: focusing on these nodes will indirectly influence the entire network. We have seen clients turn around their entire business by focusing on the 3 most influential nodes. The most influential nodes in an SDG network are a way to not only safely practice sustainable business with optimal focus, but an opportunity to turn these efforts into a core strategic advantage. Then there are the most or influenced nodes. These are a company’s vulnerable nodes. An organization does not have much influence here; directing efforts here will be inefficient because the entire network is working against you. Yet, these nodes are very important to the organization, because if these risks materialize it will likely be the end of it. This is where a company will want to focus its philanthropic efforts, to raise awareness around this SDG. It should partner with organizations that have more direct influence on this risk. In many companies, philanthropy is a separately operating unit in the company, maybe connected with HR and PR, but quite divorced from core operations. But stakeholders these days are asking more. The new message is that sustainability, or specifically the SDGs, are good business, i.e., it should be at the core of what a company does. Still, no business can focus on all 17 SDGs. So companies are still struggling with where to focus and invest. With DRA we use the latest in network mathematics and social science to help an organization determine its core strategy, as well as philanthropic focus so that these two are working coherently, mutually reinforcing, and thus effectively.
  17. Finally, we add the aspect of velocity. This will help manage the typical trade-off of profit loss due to investments in the short term versus safeguarding long-term profitability. It will also avoid, again the underestimation of how fast a risk will materialize. Because note that the velocity of a cluster is…. The minim velocity of any risk in that cluster.