FDI Risk Assessment: Toward best principle and best practice

1. FDI Risk Assessment: Toward best principle and best practice Dr. Urs Cipolat, IBCOL assisted by Anselm Schneider, CCRS, University of Zurich Dr. Patrick Wegmann, AVANON IDRC Davos – May 31, 2010

3. Context Strategy Recommendations

4. Relation IDRC – FDI risks (1) International Disaster and Risk Conference Foreign Direct Investment Risks Investor perspective: FDI may be exposed to risks (e.g., fire) Recipient perspective: FDI may represent a risk (e.g., oil spill)

6. Relation IDRC – FDI risks (3) „ Dig the well before you are thirsty. “ (Chinese proverb) => Investor and recipient should assess the risks associated with each particular investment project => Focus on prevention (risk management, Plan A) and emergency planning (crisis & continuity management, Plan B) Security Prevention Intervention Continuity Security Management Risk Management Crisis Management Continuity Management

7. Relation IDRC – FDI risks (4) BCM resilience Goal: Emergency Planning Immediate action Goal: Protection Crisis management Goal: Get situation under control BCM disaster recovery Goal: Return to normality Zeit Risk management Goal: Prevention (FDI) risk

11. Typical FDI Risks (1) Threats to an Organization External Threats

12. Typical FDI Risks (2) FDI Risk Catalogue (Model 1) Note: „One size fits all“ FDI risk catalogue does not exist => Catalogues must be established case by case => Various models available (IBCOL, 2010) Category Internal threats (e.g.) External threats (e.g.) Social Wage inequality, excessive working hours Culture clash, civil war Technical Product liability issues, lack of innovation Rapid technology change, side effects Economic Bribery, project failure (economic loss) Financial crisis, sluggish demand Ecologic Toxic emissions, violation of legal standards Natural disasters, global warming Political HR violations, complicity Expropriation, freezing of assets

13. Typical FDI Risks (3) FDI Risk Catalogue (Model 2) (ETH Zurich, 2010)

14. Typical FDI Risks (4) FDI Risk Catalogue (Model 3) (WEF, 2009)

15. Context Strategy Recommendations

16. Two Complementary Approaches Reduce Problem vs. Reduce Vulnerability Organization-owned risks: REDUCE PROBLEM External or collective risks: REDUCE VULNERABILIY Category Internal threats (e.g.) External threats (e.g.) Social Wage inequality, excessive working hours Culture clash, civil war Technical Product liability issues, lack of innovation Rapid technology change, side effects Economic Bribery, project failure (economic loss) Financial crisis, sluggish demand Ecologic Toxic emissions, violation of legal standards Natural disasters, global warming Political HR violations, complicity Expropriation, freezing of assets

17. Reduce Problem Risk Management (Plan A) Important steps 1 : Risk assessment 2 : Risk treatment a) avoid b) reduce c) share d) retain (=> Plan B)

18. Reduce Vulnerability Continuity Management (Plan B) Important steps 1 : Risk assessment 2 : Impact analysis 3 : Emergency plans (BCI GPG, 2010)

19. Context Strategy Recommendations

21. Risk Assessment – „Must Do“ (2)

23. International Standards – „Must Use“ (2) FDI Risks and compliance: Pay attention to - Hard law : Any int‘l conventions ratified by recipient country (legally binding) - Soft law : Policy standards (legally non-binding, yet of reputational relevance) - Environmental Management & Audit Scheme (EMAS) - Equator Principles (project finance guidelines) - Fair Labor Association standards - International Finance Corporation (IFC) environmental & social standards - ISO 14000, ISO 26000 - OECD Guidelines for Multinational Enterprises - OHSAS 18000 - Social Accountability (SA) 8000 - UN Global Compact

25. Risk Management Tool – „Must Have“ (2) Action Plan Owner Task Responsible Identify the risk and define the measure to mitigate the risk Assignment of activities Scenario Risk Map Action Plan Planned activities Pending list of open activities Accept and start Individual activity Confirm completion Performance Monitoring Validate completion and monitor OK Risk-Manager