Even before the pandemic hit last year, the global economy was undergoing a rapid evolution with technological innovations and changing geopolitical realities driving the transformation. Covid-19 has accelerated the need for Indian businesses to develop a conscious approach to Enterprise Risk Management (ERM), given that it is vital not only for dealing with emerging uncertainties but also for the proper allocation of resources, and for further growth of the organisation. As we gradually move towards post-pandemic normalcy and work towards revitalising our economy, we will need greater risk intelligence among professionals across industries and sectors, to make India, its economy and corporations resilient enough to face future crises.
To reach this goal, it is important that we facilitate ERM education from a very early stage, preferably through our higher education curriculum. This will also be in line with the aim of developing multidisciplinary abilities among students as outlined in the National Education Policy 2020.
Need for resilience-based education
When it comes to higher and technical education, the emphasis has traditionally been on management and leadership training. This has often led to a skewed understanding, where a lot of stress is laid on pursuing opportunities, without considering the risks associated with them. As a result, even our business graduates lack a well-rounded enterprise risk perspective.
In streams such as sciences, humanities, engineering, or medicine, risk management is completely ignored. Risk competency is rarely seen as important for non-managerial professions. However, this is a short-sighted view that is based on a limited understanding of risk management. In practice, every profession contains varying degrees of uncertainty. The ability to identify, assess, and mitigate these risks is vital in any profession. Hence, it is time we shifted focus towards resilience-based education across different disciplines as the future is laced with uncertainties of different varieties. The recently released sixth assessment report from the United Nation’s Intergovernmental Panel on Climate Change (IPCC) has once again firmly put the lens on the reality of climate change and its manifold impact on the lives of nations and citizens across continents. Nobody, absolutely nobody — individuals, institutions, economies, and nations are being spared by the rapidly changing and increasingly fragile ecosystem the planet is facing.
In the 21st century, every profession and industry will have to work within the ever-changing environment. Hence risk, resilience and responsibility are vital focus areas that need to be nurtured during the formative years of students in the Indian higher education system.
Leading through a crisis
In a rapidly changing economy, the role of leadership has also undergone a steady transformation. The pandemic required business leaders to quickly adapt to new technologies in the face of a highly volatile environment. Even as normalcy has returned in some small measure, the challenge lies in ensuring that we can stay agile in a rapidly evolving global situation.
Leaders, whether they head businesses or smaller teams within an organisation, must therefore have the skills to manage a crisis. By integrating ERM education into the university curricula, we can help students develop risk competency from an early age. Such holistic education ensures an in-depth knowledge of the principles and practices of ERM and lays the foundation of a risk-conscious approach in our future leaders.
Rising demand for risk-intelligent pros
In the last few years, we have seen an increasing demand for risk-intelligent professionals. This demand has shot up further during the pandemic as businesses realised the importance of a risk-aware organisational framework. The aim is to ensure that ERM is adopted as an integral part of organisational culture and decision-making instead of being an intermittent and compliance-based exercise.
With emerging risks from cyber-attacks, geopolitics, climate disasters, terrorism, wars, and other corporate governance-related issues, we will see an increasing focus on enterprise risk compliance across industries and sectors, and a corresponding rise in demand for risk-intelligent professionals. The inclusion of ERM in the higher education curriculum can also improve the employability of graduating students.
Regulations mandating risk management
A tightening compliance structure, with strict enforcement from regulatory bodies, has also added to the increasing demand for risk-intelligent professionals. For instance, the Reserve Bank of India mandates the appointment of Chief Risk Officers (CROs) in non-banking finance companies beyond a certain asset size. For insurance companies, risk compliance comes under corporate governance guidelines as specified by the Insurance Regulatory and Development Authority of India.
With the Securities and Exchange Board of India expected to announce a risk regulatory structure for the top 1,000 listed companies these regulations may be extended beyond financial institutions. As more regulatory bodies mandate the appointment of risk committees and CROs, ERM qualifications / examinations will facilitate faster career advancement for professionals and more resilient organisations
Moving beyond finance
Traditionally, risk compliance has been confined to financial institutions such as banks, NBFCs, brokerage firms or insurance companies. Consequently, risk management qualifications were pursued only by those students who aspired to work in the financial sector. However, with compliance structures now extending to non-financial organisations, there is a push towards risk-embedded corporate governance in different sectors. To facilitate this growing demand, ERM qualifications/examinations that provide a pathway to Certified Fellowship (CFIRM) provided by the Institute of Risk Management should be included in higher education curricula.
Under the NEP2020, students can opt for a second degree in parallel with their primary course. This means that the five-level ERM qualifications can also be pursued along with almost any graduation or post-graduation programme. Students and working professionals can opt for higher-level qualifications as they gain experience and develop a deeper understanding of the subject, further strengthening their expertise and career prospects.
A robust economy demands that our emerging workforce be capable of staying agile in the face of an uncertain and evolving business environment. This demands a risk-conscious approach that is deeply embedded within organisational structures. It has become imperative for future managers and leaders to equip themselves with the knowledge of risks in their broadest sense and as applicable to every aspect of business and life. For this, the journey must begin in the classrooms of higher education institutions, where the destiny of the nation is being shaped. We must ensure that future professionals and business leaders have the academic knowledge and the competence to take decisions using a risk-conscious framework. Towards this end, including ERM courses in the Indian higher education curriculum would be the first step.
(Hersh Shah is CEO, Institute of Risk Management, India Affiliate, Shashank Shah is Board Research Chair, Institute of Risk Management, India Affiliate.)