Sustainability Risk Management (SRM) is a form of Enterprise Risk Management providing a framework for identifying, evaluating and mitigating the challenges arising at the intersection of risk and sustainability. Until recently, the concept of Enterprise Risk Management (ERM), as it pertains to sustainability and green buildings, has been largely one sided, focusing only on managing risk. This is changing with the understanding that ERM is also an excellent tool for maximizing green and sustainable value. As climate risk becomes mainstream, ERM tools become even more important. Indeed, professionals in the insurance, green building or sustainable business fields who need to prepare for the challenging landscape of green risk and enterprise risk can benefit from a greater understanding of how to connect green and sustainable practices, review current and future sustainability risks and how insurance companies quantify, underwrite and mitigate risks. As regulators, insurance and debt rating agencies increasingly scrutinize the sustainability readiness and risk management practices of companies, evaluating green risk transfer and management techniques and introducing sustainable business, green building design and operations that directly mitigate risks can provide significant protection against exposure for enterprises of all types. Natural disaster risk, often the result of a changing climate, is contemplated within the framework of SRM, with emphasis being placed on resilience as a risk mitigation and adaptation best practice. An effective SRM framework will provide empirical proof that green buildings present less risk than conventional buildings, introduces green insurance concepts and coverage products and offers a path to reduce insurance premiums through sustainable business practices. Sustainability Risk Management offers a combination of ERM and resilience principles as the most effective tools to adapt to climate risk.

3. Risk involves…
…the possibility of
loss.
Speculative Risk: Possibility of both gain or loss.
Pure Risk: Only the possibility of loss.

4. Traditional risks are those dangers we
associate with everyday life – house fires,
automobile accidents, health injuries, etc. –
for which standard insurance exists.
LEED professionals need to
pay attention to enterprise risk,
or the risks associated with
their specific industry.

5. Insurance companies operate by:
(a) Understanding the probability of each loss based on
big data and statistical analysis
(b) Leveraging those statistics to their advantage by
having so many paying policies, only a few of which will
actually result in loss claims

6. Unfortunately, conventional probability
models are failing to stay up to date with
new risks and exposures, especially those
related to enterprise risk, climate change
and green building.

7. First, some insurance companies are failing
to adjust their statistical models to account
for increased risks associated with extreme
weather.
A report by CoreLogic found that 6.5 million homes
along the U.S. Atlantic & Gulf Coasts are at risk of
storm inundation, representing a potential $1.5 trillion
in reconstruction costs.
Yet a late 2014 study by Ceres.org of 330 insurers
cited “a profound lack of preparedness” on the matter.

8. The Consequence?
Families, businesses, the government, our
investments and the economy may suffer from
gross financial losses that could have been
mitigated, at least in part, with better preparation
and understanding of Sustainability Risk
Management.

9. Second, LEED certified and green building
owners still have a limited selection of green
insurance plans and insurers to choose
from.
This means that appropriately insuring a
green property investment (or filing a green
loss claim) is a challenge as many insurers
do not have the appropriate training to
understand green adjustments and
reconstruction costs.

10. But wait, there’s more!
As a LEED
professional, you need
to be especially
considerate of
Sustainability Risk
Management.

11. Here are just a few of your
considerations…
• Certification Risk: A binding promise of green
building certification is made, but the finished
project does not attain such certification.
• Construction Risk: In addition to standard
construction hazards, green projects face
risks associated with waste removal &
recycling, timeline delays from specialty
product procurement, and costs of
substitution for niche green experts.

12. And a few more…
• Promise of Performance Risk: A certain level of
improved energy efficiency or other green metric is
guaranteed, but subsequently unmet.
• Standard of Care Risk: The nature of green
investments over standard building projects
implies a higher standard of care taken by the
designers, architects, & builders, but unless
expectations between all parties are managed
effectively, subsequent disagreement over
professional liability is possible.

13. In addition to those mentioned, LEED
professionals need to manage other risks by
identifying weaknesses & potential exposures
specific to their field & business.
This is done by by laying out your processes,
including your supply chain, & conducting a
thorough SWOT analysis.

14. Ask yourself:
Where might my firm
and/or I be exposed to
either internal or external
hazards?

15. Commissioning as Mitigation
Transparency is key to managing expectations and
processes, but assigning a third party validation
party is one of the most rational (and required with
LEED) risk mitigation tactics.
Commissioning creates a process of checks and
balances across all parties for the entirety of the
project, thereby improving project performance
and managing risk.

16. What Other Risk Mitigation
Strategies Should I Use?
Sustainability Risk Management offers a
framework for:
• Insurance concepts
• Coverage types
• Green building development
• Strategy for reducing insurance premiums
through sustainable business practices