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A network view on the SDGs

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Presentation given during the UN General Assembly 2017, at an event of the US department of Commerce.

Abstract: Leaders face high, continuous, and sometimes contradicting demands from all different stakeholders. Managing all these demands is walking a fine line, which in today's changing world is not a straight one.
A network view that includes human intuition allows for an approach that is forward-looking in an increasingly interconnected, uncertain and dynamic world. Based on the latest academic works in finance, mathematics, as well as the social sciences, Dynamic Risk Assessment (DRA) provides the credibility to convince shareholders and investors of the potential in shared value, including financial potential.
Dynamic Risk Assessment offers a 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 the output of DRA, 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.

Publicado en: Economía y finanzas
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A network view on the SDGs

  1. 1. DynamicRiskAssessment & theSDGs September 2017 Gaya Branderhorst, DRA Lead in the Americas
  2. 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
  3. 3. DynamicRisk Assessment
  4. 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. 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. 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. 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. 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. 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. 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
  11. 11. DRAforSDG Strategysetting
  12. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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.
  22. 22. Thankyou
  23. 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

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