Registered providers should revisit their risk appetite

There is no doubt that the last year has been the definitive ‘black swan’ event that so many of us have referred to when discussing risk. Those who have fared best have worked through other scenarios as part of business continuity planning and risk management mitigations to then have confidence in enacting plans in different situations. They have been able to:

• Trust and engage their staff from the outset
• Come even closer as an executive team to manage the crisis
• Distil their performance metrics down to pass/fail
• Mobilise business intelligence across all functions
• Work tirelessly to connect with their tenants

But the situation itself, the resulting impact on the economy and, the paradigm shift of our own individual experience of the risk of the world around us means that our assessment of risk pre-pandemic is probably no longer fit for purpose. We have noticed in conversations with our clients that there is perhaps a higher degree of caution around development projects in the face of rising material costs and the impact of delays from pandemic measures current and future.

The financial impact on sales and developments during the pandemic was for many, not as bad as first feared. But it is also understood that measures such as stamp duty freezes and a knee-jerk exodus from cities have had a big effect in mitigating this impact. As the economic impacts of redundancies, business closures and a return to stamp duty and office working emerge organisations are now considering how risky future developments might be. And let’s not forget the impact of Brexit and net carbon measures on resources either.

Reassessing our risk appetite is critical

All these factors mean it is critical that we consider our appetite for risk. We must not just pile more risks on the register. It is also important that we consider this in the context of the social housing white paper and its focus on the customer – what is our risk appetite in respect of engagement with the customer for example?

What must be recognised is that the very nature of risk appetite means that you have left something on the table, you have accepted at least some element of fate. As individual board members we all come to each decision with our own personal appetite, a specific amount we are willing to leave on that table. Those board debates that are most crunchy and struggle to find resolution often indicate a difference in risk appetite between members and a lack of a collective position to refer back to. In addition, to have a clear line of sight from the board through the committees and back again risk appetite needs to be clear in order that decisions made across the governance structure are aligned to the overall strategy.

The one thing we know is that the future will continue to have uncertainties. So a flexible and coherent approach to risk is the only way we can steer through future events. We highly recommend that all registered providers revisit risk at their earliest opportunity. If nothing else, candidly test whether there is a clearly articulated appetite that matches the strategic intent of the board.

How might you revisit the risk appetite?

Here are some key considerations:

• Reflect on your current risk framework and appetite with your Board – is everyone on the same page? Is it demonstrably sponsored by an executive leader?
• Be open minded in how you consider risk appetite. Surface the individual views to find places of agreement and ensure the collective position is agreed.
• Find ways of clearly articulating the appetite so that future decision making can refer to it. This is a particularly important steer for your development and audit and risk committees.
• Consider best practice and Regulator of Social Housing expectations. Can senior stakeholders (Board and executive) provide evidence of the last occasion that risk appetite guided decision making?

Written by Cathy Beazley, Director, Altair who leads our Governance Consultancy Services.