Risks and opportunities Managing impacts and relationships? To ensure a comprehensive discussion of risk management is presented in the Annual Report, there ought to be a joined-up view of the business demonstrating the links between risks the company faces and strategy, governance and remuneration. There is growing recognition that risk and strategy go hand-in-hand and company approaches are seemingly moving beyond controls based management to embedding a risk aware culture throughout the business. The narrative of the risk disclosure should be clear and concise to allow the reader to gain an understanding of all factors facing the business and the internal processes in place to manage and mitigate these risks. In addition, the report should include a discussion of the mechanisms in place for identifying principal risks and continually reassessing the organisation’s risk profile. Identification of financial and nonfinancial risk factors demonstrates that management have taken into account the potential impacts of the business activities and, for each risk, there should be an assessment of the impact on the future success of the business, the long-term sustainability of the company, and the local community. Of course, it is again essential that the risks and opportunities presented are material to the group’s current and potential activities in the areas of financial, social, environmental and governance, including elements such as resources, relationships or external factors that might affect the companies’ ability to create and sustain value now and in the future. Key findings Very few companies across the sample group provide quantified information about the effect of a risk should it occur, but tend to confine themselves to broad generalist comments. Risk reporting is a fairly strong area for reporting within the European region with many of the reports presenting informative risk discussions, including the processes involved with risk identification, management and accountability. In addition, there is sometimes some forward-looking information presented which informs the reader of the potential opportunities for the company. South African reporters have again fared well in this area of their reporting with 76% of companies providing information on their non-financial risk factors and 63% outlining potential impacts (although very few quantify these impacts) and mitigation activities for each risk factor. The risk sections in the South African reports tend to be fairly comprehensive in terms of incorporating non-financial information into the central narrative of the report. The extent of risk reporting in Brazil is somewhat lagging behind Europe and South Africa but it is clear that the companies recognise this area of reporting and its importance in providing a transparent account of the past and expected performance of the business. They are, however, leading the field of emerging economies as Indian and Chinese companies in particular are struggling to provide a comprehensive overview of principal risk factors and mitigation strategies in place. Identifying non-financial risk factors Top countries: South Africa 75% Europe 65% Brazil 55% Disclosing potential impacts of non-financial risks Top countries: Europe 70% South Africa 62% Brazil 36% Disclosing mitigation activities for non-financial risks Top countries: South Africa 62% Europe 45% Brazil 36% www.blacksunplc.com © Black Sun Plc 2011 23