The handling of ESG risks is increasingly coming into focus for many companies. This trend is accelerated by the growing due diligence obligations for companies. What does this mean for an international Group with complex supply chains? In this interview, Thilo Mangold, Head of the Group Risk and Opportunity Management, talks about new perspectives and what they have to do with a speak up culture.
Thilo Mangold
Mercedes-Benz AG
Mr Mangold, in order to manage risks, one must first identify them. What social risks does Mercedes-Benz deal with?
There are a number of them. First of all, a social risk describes the danger that events, developments, or actions hinder us from achieving our goals. To prevent this, we systematically address labour and human rights risks, for example. We do this not only in all the countries we operate in, but also in all areas of our value chain, from research and development, procurement, production, to sales and our financial services. Some risks arise from the fact that we, as an international corporation, are subject to various, sometimes heterogeneous regulatory requirements. Others are directly related to our sustainable business strategy. Through forward-looking risk management, we ensure the long-term performance and innovative strength of the Group. It is crucial to take countermeasures for the identified risks as early as possible. To sum up: The traditional risk map has changed. It has become much denser due to the increasing integration of ESG issues and an increasingly complex environment with numerous stakeholders. But that is only one side of the coin...
What is the other side?
Where there are risks, there are also opportunities for the Group. In risk and opportunity management, we aim to identify and analyse these opportunities, where we can position ourselves as a ‘first mover’ to make a positive difference for our customers, employees, investors or other stakeholders in the future. Through risk and opportunity management, we have the ability to identify changes in the Group's environment at an early stage, such as those affecting human rights, diversity or resource conservation, and to develop appropriate responses with foresight. That is an important building block in creating additional value for both the Group itself and its stakeholders.
How does the handling of classic and ESG risks or opportunities differ?
The first difference lies in how they are identified. To stick with the metaphor of the risk map, it is important to be sensitive to the new topics and to view the entire environment with a 360-degree view. In this way, early warning signals can be detected as quickly as possible. At the same time, such assessment has also become more complex, since classical risks can usually be quantified more easily. Putting a price tag on ESG risks that shows the potential impact on the company's results is much more difficult. This is mainly due to the fact that cause and effect are often not clearly connected. Sometimes, effects occur in places that were not previously considered. We have to deal with this and adjust our methods accordingly. In addition, another perspective must be taken into account in the assessment: the inside-out perspective. It assesses how a potential damage resulting from a risk would affect the Group's environment.
Methodology is a good keyword. Can such heterogeneous risks as, for example, human rights violations and the shortage of skilled workers be managed in one system at all?
To put it bluntly, we cannot afford to work with a patchwork. We have a clearly defined process and an associated IT system, a "single source of truth". The input for this comes from numerous sources. For the area of human rights, the Social Compliance department, among others, provides important information via the Human Rights Respect System. Risks arising from the shortage of skilled workers, on the other hand, would be reported primarily by Human Resource Management. Behind each of these are different evaluation logics, yet everything is based on a uniform screening and reporting process. All of this serves our goal in central risk management: to bundle and analyse information. The assessment of external impulses also plays an important role. To capture them, we have established a so-called "risk radar" within the company, where we regularly work together with colleagues from the investor relations, external affairs or communications departments, for example. There, early warning signals and current issues are discussed, and it is examined what opportunities and risks could arise for us. The earlier we recognise developments, the better.
What possibilities do you see to promote early detection?
Developing sensitivity for ESG issues throughout the entire corporation is a central aspect. We are achieving this step by step, based on information accessible to everyone and a dialogue within the Group. At the same time, we need people who openly address risks. This is what is meant when we talk about a speak-up culture. This culture is essential for risk management because it helps to ensure that issues critical to success are discussed and assessed at an early stage. Perhaps some may be concerned about being seen as a sceptic, which is why it is not so easy to deal with risks in a transparent way. Part of our job in risk management is to address these challenges and alleviate any concerns. Our team therefore works across divisional and national boundaries to create a culture in which we jointly assess risks at an early stage and take countermeasures together early on as well.
Thilo Mangold
heads Group Risk and Opportunity Management at the Mercedes-Benz Group. Although he mostly deals with risks in his daily work, he still describes himself as a very optimistic and at the same time realistic person.