Page 1 RMBI Newsletter RMBI Newsletter Bloomberg L.P. at the Sustainability Edge In modern business environment, creating long term value for stakeholders implies the need for companies to operate in a sustainable manner and being responsible to the society. With the increasing importance of responsible investment, investors and analysts are looking for ways to integrate ESG (Environmental, Social and Governance) factors into their investment strategies. The trend reveals the belief of company executives in sustainability as a core element to the creation of long-term value. On the other side, investors are keen to know company information other than just balance sheets and financial statements. As a multinational financial data provider, Bloomberg L.P. takes the lead to provide a comprehensive view on performances of companies to analysts and investors by including environmental, social, governance (ESG) data in its databases. We are glad to have invited Ms. Frances Liu, ESG Analyst at Bloomberg, to introduce the functions and usage of the ESG database. Ms. Liu is based in Hong Kong, covering Greater China Region and is extensively involved in product development at Bloomberg since 2011. Apart from providing feedback and suggestions on China CSR Guideline and ESG developments in The Shanghai Stock Exchange Focus Group, she had worked with Deloitte and created the Hong Kong Sustainability Reporting Working Group. An Introduction of ESG ESG was first proposed by the UN Global Compact’s “Who Cares Wins” initiative in June 2004. It aims to highlight the importance of many issues such as energy use, greenhouse gas emissions, employee safety and diversity, board of directors and corporate governance. By November 2012, Bloomberg L.P. provided ESG data for 9,643 companies globally: 3,300 in the United States; 307 in Australia; 3,787 in Asia; 758 in Europe, the Middle East and Africa (EMEA) and 3,629 in North America. The ESG model is built by defining data points with reference to the Global Reporting Initiative (GRI), and gathering opinions from investors and analysts. As of 2012, there are 219 raw data points available for users to download from Bloomberg ESG database. ESG data points are either quantitative or qualitative in nature. Qualitative data includes initiatives such as a company’s policies for energy efficiency, human rights and anti-corruption. According to Ms. Liu, Bloomberg captures most of the data from company filings such as annual reports, corporate social responsibility reports, government and company websites. Besides, Bloomberg distributes the Bloomberg ESG survey to companies to capture information that is not readily available in public filings. A global team of analysts monitor the release of the reports and update them in a timely manner. Data collected are presented in standardized format with source documents attached. ESG database and its significance There are a number of functionalities that are integrated with ESG data to improve usability and data analysis. Investors can easily screen and make keyword search to select investments that suit their needs and make comparisons between similar companies. Tools and charts are available to track changes, such as the growth rate of water consumption, so as to provide insights into future trends. The system can also accommodate more than 10 languages. Feature Story Risk Management and Business Intelligence Program The Hong Kong University of Science and Technology 風險薈訊 September, 2013 Issue 6
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Page 1
RMBI NewsletterRMBI Newsletter
Bloomberg L.P. at the Sustainability EdgeIn modern business environment, creating long term value for stakeholders implies the need for companies to operate in a sustainable manner and being responsible to the society. With the increasing importance of responsible investment, investors and analysts are looking for ways to integrate ESG (Environmental, Social and Governance) factors into their investment strategies.
The trend reveals the belief of company executives in sustainability as a core element to the creation of long-term value. On the other side, investors are keen to know company information other than just balance sheets and financial statements. As a multinational financial data provider, Bloomberg L.P. takes the lead to provide a comprehensive view on performances of companies to analysts and investors by including environmental, social, governance (ESG) data in its databases.
We are glad to have invited Ms. Frances Liu, ESG Analyst at Bloomberg, to introduce the functions and usage of the ESG database. Ms. Liu is based in Hong Kong, covering Greater China Region and is extensively involved in product development at Bloomberg since 2011.
Apart from providing feedback and suggestions on China CSR Guideline and ESG developments in The Shanghai Stock Exchange Focus Group, she had worked with Deloitte and created the Hong Kong Sustainability Reporting Working Group.
An Introduction of ESG
ESG was first proposed by the UN Global Compact’s “Who Cares Wins” initiative in June 2004. It aims to highlight the importance of many issues such as energy use, greenhouse gas emissions, employee safety and diversity, board of directors and corporate governance. By November 2012, Bloomberg L.P. provided ESG data for 9,643 companies globally: 3,300 in the United States; 307 in Australia; 3,787 in Asia; 758 in Europe, the Middle East and Africa (EMEA) and 3,629 in North America.
The ESG model is built by defining data points with reference to the Global Reporting Initiative (GRI), and gathering opinions from investors and analysts. As of 2012, there are 219 raw data points available for users to download from Bloomberg ESG database. ESG data points are either quantitative or qualitative in nature. Qualitative data includes initiatives such as a company’s policies for energy efficiency, human rights and anti-corruption.
According to Ms. Liu, Bloomberg captures most of the data from company filings such as annual reports, corporate social responsibility reports, government and company websites. Besides, Bloomberg distributes the Bloomberg ESG survey to companies to capture information that is not readily available in public filings. A global team of analysts monitor the release of the reports and update them in a timely manner. Data collected are presented in standardized format with source documents attached.
ESG database and its significance
There are a number of functionalities that are integrated with ESG data to improve usability and data analysis. Investors can easily screen and make keyword search to select investments that suit their needs and make comparisons between similar companies. Tools and charts are available to track changes, such as the growth rate of water consumption, so as to provide insights into future trends. The system can also accommodate more than 10 languages.
Feature Story
Risk Management and Business Intelligence ProgramThe Hong Kong University of Science and Technology
In order to compare the disclosure level of a company, Bloomberg has created the ESG disclosure score. Its three sub-scores quantify a company's transparency in reporting environmental, social and governance data. This score is based on 100 out of 219 data points that Bloomberg collects, and is weighted to emphasize the most commonly disclosed fields, with adjustment from time to time.
After ESG data is collected, Bloomberg L.P. conducts analysis to generate critical information for stakeholders. This is beneficial for both investors and the company itself. A valuation tool is implemented to investigate how ESG factors influence net profit/Pre Tax Profit/EBIT/EBITDA. The tool identified 13 ESG Key Performance Indicators (KPIs), quantifies each of the company's ESG KPI impacts, and applies a pricing factor to these impacts. Using projected performance results, the user is then equipped with a basic model to calculate an ESG-adjusted EBIT and share price valuation. A high employee turnover ratio implies high hiring cost and hence a negative impact on profitability. This calculation model is publicly available such that companies can evaluate the ESG scores on their own. Companies can set desired scores as their goals and adjust their company policies accordingly when one ESG factor becomes less profitable.
ESG can provide valuable information to improve the risk management for both firms and investors. Ms. Liu believes that by encouraging an emphasis on the potential of ESG as a future trend, firms might be motivated to disclose their non-financial data in a bid to boost investors’ confidence. There is incentive to reveal such comprehensive data, as failure to act accordingly might imply inherent operational risk for the firm.
Moreover, as investors become more aware of the multiple aspects of a company’s performance, we might observe better risk-informed decision making.
An example could be that of a company revealing its green data. The company might benefit from good brand and reputation of being a leader in promoting environmental sustainability. The company might gain recognition for efficiency of management of its resources. All of these are highly desirable by investors and contributes significantly to growth and hence profitability of the company.
Limitations and Challenges
With ESG being an innovative concept, there are difficulties and limitations. Ms. Liu noted that most Hong Kong companies do not have ESG data currently available. There are unclear guidelines in the past on the reporting of ESG data, especially for the qualitative part.
Yet companies like MTR and CLP have been reporting ESG data to communicate their sustainability performance and enhancing their reputation. In China, there have not been specific guidelines on reporting either. Companies in the United States
Analysis on alternative energy news story flow compared to NYSE® BNEF® Americas Clean Energy Index此圖表比較「有關替代能源的新聞資訊項目」和「紐約證券交易所-彭博
新能源財經-美國清潔能源股票指數的表現」
Analysis showing how ESG factors might impact EBIT此分析工具描述 ESG 如何影響公司的除稅及利息前盈利
Correlation analysis between an ESG criterion and a financial criterion. This example examines how a higher percentage of independent directors is related to dividend payout ratio.
這是一項ESG標準和一項財務標
準的相關性分析圖,分析較高獨
立董事比例和派息比率的關係。
在現今的營商環境下,企業不但要努力實踐
可持續發展的營運模式,為股東帶來長遠穩
定的利益,更要積極從商業角度幫助解決社
會問題。隨著負責任的投資於市場漸趨重
要,投資者和分析員均希望將ESG元素加入
投資策略中。
鑒於不少行政人員相信可持續發展對股東的
長遠利益有正面影響,長期投資者為投資作
估值時亦關心財務以外的資訊。作為跨國財
務資訊供應商,彭博將ESG數據納入其資料
數據庫中,讓分析師及投資者對企業的表現
有全面的了解。我們有幸邀請到彭博ESG分析
師廖錦屏小姐接受訪問,為我們講解ESG數據
庫的功能和用法。廖小姐的分析工作範圍主
要涵蓋中國地區,並由二零一一年起專責彭
博產品的開發工作。除了在上海證券交易所
專題小組內為中國企業社會責任指引和ESG
發展提供建議外,她亦與德勤合作,組成了
香港可持續發展報告工作組。
doing well but with room for further improvement to increase data coverage. It is expected that there will be more regulations and voluntary disclosure of ESG data in the near future.
One major concern is dishonesty in reporting, which is prevalent across the globe. Bloomberg L.P. compares and verifies the sources of data. However, it might not be easy for Bloomberg to discover intentional dishonest act. Third party verification needs to play a part in ensuring data integrity. The regulations in some countries require legal liability for data reporting.
It is challenging for multinationals to report every ESG detail as many of their departments and subsidiaries are situated at different places around the world. Bloomberg L.P. often chooses to take the consolidated report or take time to compile a report for both parent company and its subsidiaries as a whole for standardization.
Moreover, several countries are having different regulations on ESG data reporting. It is very difficult to compare companies' performance as companies are reporting in a different ways. Over the last few years a number of initiatives, organizations and individuals began to converge in response to the need for a consistent, collaborative and internationally accepted approach to Integrated Reporting. IIRC is formed to create an Integrated Reporting framework which will enable companies to bring more coherence and focus to corporate reporting and dialogue with its stakeholders.
Ms. Liu added that Hong Kong Exchanges and Clearing Limited has published an ESG guide in August 2012, suggesting listed companies to disclose as many as 34 KPIs. They may require an obligation to "comply or explain" by 2015. In the near future, we are expecting more companies to release their reports.
Over the last few decades, MTR Corporation Limited (MTR) has provided a backbone railway transport system in Hong Kong. It is also one of the safest railway networks in the world. With a route length of 218 kilometers, the well managed MTR network provides fast, reliable and comfortable services to the public of Hong Kong.
Apart from running railway services in Hong Kong, MTR also engages in a range of business activities including developing and managing residential and commercial projects. Furthermore, MTR runs similar businesses outside of Hong Kong. The diversified business profile brings both opportunities and potential risks to MTR. We have invited Dr. Yu Hon Kit, Henry, Senior Manager - Enterprise Risk from MTR, to share with us the key elements of the MTR risk management regime.
Dr. Henry Yu has worked in MTR many years. He is an electrical engineer by profession. He started to practice safety risk management since 2007 and he became the Enterprise Risk Manager of MTR in 2011.
MTR Risk Management Regime
MTR started to implement risk management in the early 90’s. The initial focus was on the operating railway safety and service performance. As time progressed, the Company gained more experience on risk management and the risk culture in the Company became more mature, then risk management practice was progressively rolled out to different business aspects, such as environmental management, asset management, outsource management, security and project management, etc.
To assure that risks facing the Company are managed holistically, MTR introduced the Enterprise Risk Management (ERM) framework in early 2006. The ERM framework provides a simple system to identify, assess, treat and monitor risks. MTR clearly stipulates in the Enterprise Risk Management Policy that “the Management has a duty to engender a proactive risk culture throughout the organisation and embed risk management into everyday business operations. Risk management is the responsibility of every staff member”.
Core to the ERM framework is the Enterprise Risk Committee (ERC). The Committee is led by the Legal Director & Secretary with representative from each department of the Company. It is established to drive ERM in the Company and it plays a key role in managing the key risks facing the Company. The ERC reports the key risks to the Executive Committee every six months and the Board of Directors every year. The ERC also reports the ERM process to the Audit Committee every year.
MTR uses simple and consistent messages to communicate risk information. Risks identified are assessed and ranked from level 1 to level 4 depending on their occurrence likelihood and impact severity. Level 1 refers to very high risk and level 4 refers to very low risk. This notation is used regardless the risk type, eg. enterprise risk, safety risk, environmental risk, project delivery risk, etc. Each risk type is assigned with a dedicated prefix. “E” stands for enterprise risk, “R” stands for safety risk, “P” stands for project delivery risk, etc. Hence, an E1 risk means a very high enterprise risk whereas an R4 risk means a very low safety risk. This approach to “name” risks is simple and effective that allows the Company to communicate risks at all levels clearly.
The degree of attention required for treating the 4 levels of enterprise risk is clearly defined in the ERM framework. E1 risks are very high risk that shall be reported to the Board and be treated urgently. E2 risks are high risk that shall be reported to the Executive or relevant Divisional Director and with treatment plan proactively implemented if reasonably practicable. E3 and E4 risks are medium and low risks respectively that will be treated within the concerned business units where necessary. When assessing enterprise risks, MTR always considers the potential impacts in five aspects, namely financial impact, safety impact, business performance impact, political/reputation impact and legal/regulatory impact. MTR always pays special attention to high consequence risks, though their likelihoods may be very low, as they could lead to devastating impact on the Company and/or the society. Examples of this type of risks are incidents leading to loss of right to operate, resulting in multiple causalities, etc. Some people may refer these risks as “Black Swan risks”.
Benchmarking exercises are run extensively to learn good practices from the industry. Risk treatment plans will be enhanced and/or revised based on the lessons and good practices learnt where applicable. In addition, Henry and his team will conduct ERM Roundtables in Hong Kong and the UK every year to exchange good ERM practices with the industrial partners, which are proven to be a high value exercise.
Conclusion
The enterprise risk management framework of MTR is well recognized both locally and internationally. The Company was recognized by CoMET as the company with the highest risk maturity level in the “International benchmarking of Enterprise Risk Management Practice in Metros” in 2012. To conclude, Dr. Yu said the top management support and the simple processes are the key success factors that make everyone in the Company embraces risk management.
MTR has established a very clear and simple channel that allows risk intelligence to flow bi-directional between the Executive and the business units, which assures that risk management processes at all levels of the Company are closely linked. So, while the business units are managing their respective risks at the business unit level, the risk information are consolidated as the Top 30 corporate risks and are rigorously reviewed by the ERC at the corporate level, with the Top 10 risks reviewed by the Executive every 6 months and by the Board every year. The ERM framework has proven to be able to allow the Board and Executive to maintain adequate oversight on the key risks facing the Company, as well as to create value to the stakeholders and help assure sustainable growth of the Company.
MTR takes a proactive approach to learn and improve. Incidents happened within and outside of the Company will be reviewed by relevant parties to identify lessons learnt and potential improvement initiatives.
Mr. Dominic Wu is the Managing Director and Senior Risk Manager with BNY Mellon for APAC. Dominic has more than 20 years of experience in the Financial Industry. Dominic is a qualified accountant, fraud examiner and professional risk manager and did his MBA from University of Hull, UK as well as the Chairman of Asia Chapter of the Institute of Operational Risk (IOR).
Banks are exposed to risks in their course of business and have to strike a balance between risks and return without undermining their overall financial soundness and viability, i.e. running the business within a well-defined risk appetite.
Irrespective of the risk type, risk appetite can be defined as the level and type of risk a firm is able and willing to assume in its exposures and business activities, given its business objectives and obligations to stakeholders. The amount should be quantifiable and measurable. The acceptable or desirable level of risk will depend on the nature of the business activities and the way in which objectives are pursued.
銀行在營運過程中必然會面對風
險,他們必須在風險與回報之間取
得平衡,同時確保財務結構穩健可
行。換言之,他們必須明確界定承
受風險的能力,並在這範圍內經營
業務。
不論何種風險,風險承受能力可以
解釋為一間企業在考慮到其商業目
標以及對股東的義務後,所願意並
有能力承擔的風險水平以及風險類
型。風險承受能力須為可量化或可
度量,並應取決於企業業務活動的
性質以及實現目標的方式。
Text 撰文
Mr. Dominic WuChairman of the Asia Chapter of the Institute of Operational RiskManaging Director, Senior Risk Manager The Bank of New York Mellon
操作風險專業學會亞洲分部主席,紐約梅隆銀行有限公司
董事總經理及高級風險管理經理 鄥思彥先生
作者簡介
鄔思彥先生現為紐約梅隆銀行
有限公司董事總經理及高級風
險管理經理,在金融界擁有二
十多年工作經驗。鄔先生是英
國赫爾大學 (University of Hull, UK) 工商管理碩士,並為註冊會計師、註冊舞弊檢查師、專
業風險管理經理及操作風險專
業學會 (Institute of Operational Risk) 亞洲分部主席。
"To win you have to risk loss." Jean-Claude Killy (A former World Cup alpine ski racer from France who born in Saint-Cloud, Hauts-de-Seine and dominated the sport in the late 1960s.)
Risk appetite should be clearly articulated so that risks could be measured and managed in a practical way. This can be done by using the qualitative or quantitative approach.
The qualitative approach emphasizes the relationship between risks and business management. This is often regarded as the best way to describe an organization’s “risk culture” - the general attitude and behaviors of the organization towards risk-taking. This approach includes the following:
- It should be recognized that some risks, albeit unwelcome, are unavoidable
- It is reasonable to accept risks where the cost of mitigation/avoidance exceeds the expected loss provided that it will not result in undue risks.
- Risks are acceptable if the estimated losses are within prescribed tolerance levels.
- Unacceptable behaviors include: knowingly breaking the law; knowingly breaching regulatory requirements; knowingly breaching company policy; damaging the environment; disrupting service to customers, etc.
定性與定量
清楚闡明風險承受能力,有利於切實可行地評估和管
理潛在的風險。風險承受能力可以利用定性與定量兩
種方法來表達。
以定性方式來闡述風險承受能力,較為著重風險與商
務管理之間的關係。這種表達方法被認為是描述一個
機構對於風險的取態與行為的最好方法,亦即其「風
險管理文化」。這種描述方法通常包括以下幾方面:
- 應意識到有些風險是無可避免
- 當規避風險的代價大於該風險的預期損失時,只要
所承受的風險並不過多,承受風險是合理的決定。
- 因承受風險而可能造成的預期損失,必須在規定的
可接受範圍以內。
- 若造成以下情況則不應接受風險:故意違反法律、
故意違反監管規定、故意違背公司政策、破壞環境、
中斷對客戶的服務等等。
際,但這種做法其實是要傳遞一個觀念,即接受可規
避的損失是不恰當的。以定量方式評估風險承受能力
的例子有:就各類風險所準備的經濟或監管資本金
額;表現水平,例如在一年內關鍵業務系統無法使用
歷時超過一天的機率不超過某個百分比率。
銀行經常會同時採用兩種方法來闡述風險承受能力,
而不會只依賴其中一種。這兩種方法均可採用「固
定」和「相對」的概念來表達,區別在於絕對計算值
是固定的,而相對計算值則是變數,會按比例地跟隨
其他衡量基準而變化。
The quantitative approach, on the other hand, involves hard data that are usually based on business management information which could be any combination of Key Risk Indicators.
Such measures are usually accompanied by thresholds so that it is immediately apparent when a breach has occurred or is imminent. The concept of setting zero thresholds may seem impractical but they can have a cultural purpose in reinforcingthe message that it is not appropriate to accept avoidable losses without question. Examples of quantitative measures include: the amount of economic or regulatory capital allocated to various types of risk; performance levels, e.g. the possibility that any major business system is unavailable for more than one day in any one year does not exceed a certain percentage.
Banks usually adopt both approach and would not just rely on one. In both approaches, the concept of “fixed” or “relative” can be adopted for articulation. The distinction here is that absolute measures are fixed and relative measures are variable, moving in proportion to other benchmarks.
另一方面,風險承受能力的定量
分析需要採用客觀的數據,這些
數據通常來自業務管理的資訊,
而這些資訊可能是以各種關鍵風
險指標的組合為基礎。
這種度量方法通常會設有臨界
值,這樣,當風險超過或迫近臨
界值時便可輕易被察覺。把臨界
值設為零的概念雖看似不切實
Setting Thresholds
A key element of the setting up process is the establishment of agreed thresholds. These provide specific definitions for each expression of risk appetite, such as what constitutes “acceptable”, “tolerable” or “unacceptable”. For qualitative expressions of appetite this could simply be a matter of stating explicitly what is acceptable and what is not.
Identifying the “right” thresholds should ultimately be a matter for the respective business line to determine, drawing on practical experience of the context and expected future developments. The decision can be informed by reference to any relevant data, be it historical or predictive, internal or external (i.e. benchmarking against comparable organisations or industry standards). Even so, if the procedure for review/approval of thresholds is flexible enough, initial attempts can be fine-tuned in the light of use in practice. Thresholds should be sensitive enough to provide “early warning” of potential breaches of risk appetite but not so hypersensitive that alarm bells ring needlessly.
There are various ways of depicting a distribution curve for operational risk and the example below is for illustrative purpose only. Thresholds can be set at any point along the risk curve from high likelihood/low impact to low likelihood/high impact, that is:
- The value of expected losses that can be sustained within normal trading (i.e. within existing budget or P&L capacity) and will be tolerated, being within stated risk appetite; The value of expected (and to some extent unexpected) losses where the risk is insurable and the amount not covered (either before the amount is covered or above the maximum amount covered) is tolerated within risk appetite;
- The amount of capital allocated as a buffer against severe unexpected losses is unsustainable within normal P&L resources.
Where quantitative data is involved it may be appropriate to express tolerance within a range of values, and this may include both positive and negative variances. For example, if a business is monitoring the number of employees, a significant variation above or below the target optimum may be an indication of different kinds of adverse consequences. Too many employees could signal inefficiency, waste of resources and unnecessarily costs, whereas too few might lead to failures in procedures and controls or a decline in customer service quality. See illustration below.
The alert to either possibility is helpful from both a business and risk perspectives.
To define the risk appetite, we can apply a 3-tier approach using both qualitative and quantitative information.
把風險控制於可承受範圍
我們可以運用定性與定量分析的資訊,從三個層面界定風險承受能力
的範圍。
Under tier 1, the board and senior management will define the high level qualitative information, e.g. 5-10 statements, senior management will set the tone and provide clear direction.
Tier 2 will link the risk appetite to Key Risk Indicators and will define the measurement of key risks in the business process.
Finally, tier 3 will define “line in the sand”, i.e. the tolerance zone and the outer zone where risks would not be tolerated. Usually, the red zone is considered to be non-tolerable if the risk persist over a period of time without improvement.
This approach articulates risk appetite on a structured model.
As mentioned earlier, business activities resulting in risks exceeding the tolerance level should be continuously reviewed and actions should be taken to keep it within the range of risk appetite.
The board should ensure that robust procedures and controls are in place for setting and monitoring the risk appetite. A prudent approach should be adopted to enable the senior management to understand the current risk position relative to its risk appetite and how the position would be changed if the risk appetite is changed.
Dr. Lam Siu Lee Jasmine is an Assistant Professor at Nanyang Technological University in Singapore. She is Associate Editor of Maritime Policy & Management journal and a member of BNP Paribas international scientific committee. She is active in research and has been invited by various organisations and port authorities as a speaker at international conferences.
Maritime transport is a vital trade facilitator in the contemporary globalized economy, enabling the reliable and cost effective transportation of goods across vast distances and multiple supply chains. However, shipping and marine cargo have been challenged by considerable increase in risks. Events such as natural catastrophe, ship collision and piracy continue to appear in news headlines. Over the last decades, there has been an increase in the number of natural hazards and catastrophic events. Munich Re reported that the overall earthquakes and weather-related catastrophes in 2011 is the costliest year ever, recorded a total natural catastrophe losses at about US$380 billion and total insured losses of US$ 105 billion (Munich Re, 2012). The Tohoku earthquake and tsunami in March 2011 which damaged Japanese seaports and marine cargoes is a key example. With regards to man-made incidents, piracy crisis in the Gulf of Aden, off the coast of Somalia, and in the wider Indian Ocean, has worsened since 2008.
海上運輸使長距離、跨供應鏈的貨物
運輸能夠經濟可靠地進行,是當代全
球化經濟至關重要的推動劑。然而自
然災害、船舶沉沒、海盜行為等事件
發生頻率的持續增加使這種運輸中蘊
含的風險越來越大。在過去幾十年,
自然災害與災難的數量呈增長態勢。
另外,慕尼克保險報導稱2011年是全
球地震和與天氣相關的災難所造成損
失最大的年份,自然災害造成的經濟
損失大約3800億美元,保險損失1050
億美元(慕尼克保險公司,2012)。
2011年發生的日本東北地方太平洋近
海地震就是一個關鍵的例子,它使日
本的港口和海運貨物遭受嚴重破壞。
人為事件中,索馬里外海亞丁灣附近
以及更廣闊的印度洋海域發生的海盜
危機從2008年開始愈演愈烈。對此,
雖然有關方面已採取相關監管控制,
如建立國際安全管理章程,海運事故
的發生幾率仍然未有降低到理想水
準。
Text 撰文
Dr. Lam Siu Lee Jasmine Assistant ProfessorNanyang Technological University, Singapore新加坡南洋理工大學助理教授 林筱莉博士
Despite of regulatory control such as the establishment of International Safety Management (ISM) Code, the rate of shipping accidents has not been reduced to the desired levels.
Considering the complication of shipping techniques, high mobility of cargoes and poor condition and uncertainty during the voyage, there are numerous risks in the transportation process. With the burgeoning of shipping volumes, the occurrence of accidents and disruptive events could bring huge losses. Furthermore, while precautionary measures such as insurance coverage could be adopted, hidden risks such as business interruption and loss of reputation that operators fail to identify will accumulate with the expansion in scale of business. Shipping companies could suffer from significant losses and financial difficulty. Therefore, it is important to establish an effective risk quantification and management mechanism for shipping companies and to improve risk control process in order to cover the various components of the operating system. Building a risk assessment system, identifying and evaluating risks before hazards happen, dividing the risk level, conducting a feasibility study and is the major process to reduce the risks of shipping industry’s stakeholders.
However, marine risk is not well understood in the insurance and re-insurance industries. Due to the dynamic nature of business and mobile nature of exposure, marine exposure does not fit into the normal pattern of commercial catastrophe models. A major challenge in analyzing marine risk is, how to thoroughly identify the core indicators that lead to marine risk exposure among the numerous and complex factors. In the case of maritime transport, where it is a derived demand and heavily ensconced in global supply chains, business interruption aspects from a catastrophe should be deliberated. Therefore, the resultant model must not only consider the mobile vessel as an asset, but also take into account the cargo on-board as well as in-port. The international nature of maritime business makes the picture even more difficult to be captured.
The Tohoku earthquake and tsunami in March 2011 damaged Japanese seaports and marine cargoes. 2011年發生的日本東北地方太平洋近海地震使日本的港口和海運貨物遭受嚴重破壞。
(Source 圖片來源: http://www.jeffhead.com/)
The maritime industry should look into risk management in the maritime logistics and supply chain context instead of dealing with risk in isolation.海運業應將風險管理融入海運物流和供應鏈的背景下,而不是分離地
The maritime transportation process is a fairly complicated one, consisting of different entities and players. This ranges from shippers, distributors, freight forwarders, shipping companies, port/terminal operators to inland transport operators and finally ending up with consignees. The whole process is facilitated by these players performing different but inter-related functions. A key challenge in managing marine risk is the relatively low level of collaboration among these parties. Realising proper risk management needs to be embraced by the supply chain members and collaboration is the key ingredient to success. Maritime supply chain parties should explore mutual interest and take a gradual approach in collaborative risk management.
Risk management is a key concern for many stakeholders ranging from industry practitioners to the people who are affected by the maritime business throughout the world. With the emergence of the concept and practice in supply chain risk management, the maritime industry should look into risk management in the maritime logistics and supply chain context instead of dealing with risk in isolation. This is a new concept of much potential to be explored. While a more integrated approach is recommended for marine risk management, the same token applies to conducting such research. Research collaboration among academic institutions, government agencies, maritime and insurance companies is conducive for analysing marine risk which is currently under developed. A proactive approach in risk management will ensure that individual firms as well as the overall industry at large can be more prepared and less vulnerable leading to higher competitiveness overall.
海運過程非常複雜,涉及不同的參與者,包括托運人,分銷商,貨運代理,
航運公司,港口或碼頭運營商,內陸運輸經營者和收貨人。不同參與者扮演
不同的角色卻履行著相互關聯著的功能,這也促進了整個海運的過程。管理
海運風險所遇到的關鍵問題就是,這些團體間的協作水準相對較低。換言
之,成功管理海運風險重在供應鏈上眾多角色的配合與協作。海運供應鏈上
的各方應該探討共同利益並漸漸地探索如何在合作中進行風險管理。
風險管理對於許多利益相關者都是一個重要問題,他們包括行業從業者以至
全球任何可能被海運所影響的人們。隨著供應鏈風險管理的概念和實踐的興
起,海運業應將風險管理融入海運物流和供應鏈的背景下,而不是分離地處
理風險。這是一個新的概念,有很大的探索空間。這個融合的方法不僅適用
於海運風險管理,也適用於對於海運風險的研究。在研究中納入學術機構,
政府機構,海事和保險公司之間的合作,有利於分析尚未研究成熟的海運風
險。積極主動的風險管理方法也將確保個別企業以及整個行業在高競爭水準
下有更全面的準備和更強的抗打擊能力。
Reference 參考資料Munich Re (2012). Natural Catastrophes in 2011. Munich Re NatCatSERVICE. Online www.munichre.com/en/media_relations/press_releases/2012/2012_01_04_press_release.aspx
Chinese Translation 中文翻譯
LI Xiaoyue Roxanne 黎曉月
Year 1 student of Risk Management & Business Intelligence Program風險管理及商業智能學課程一年級學生
The result from the analysis for the performance of participants in the investment knowledge competition reflects that the public lacks sufficient investment knowledge and overlooks the risks and consequences of improper management of their personal wealth.從分析參賽者在投資知識網上問答比賽中的表現結果可
As an international financial centre, Hong Kong provides investors with a wide range of investment products. However, the findings of a survey conducted by Nielsen show that only around 40% of the respondents participated in investment last year despite the increasing participation rate in investment in recent years. Hong Kong Investment Funds Association (HKIFA) hosted an investment knowledge competition (an online quiz), with questions ranging from fund, stock, bond and derivative to risk, regularity and general investment knowledge. Over 1000 people participated in the competition but only about 800 participants answered all questions with an average score of 60%. Bruno Lee, HKIFA Unit Trust Subcommittee chairman said the results reflect that the public lacks sufficient investment knowledge and overlooks the risks and consequences of improper management of their personal wealth.
No investment does not mean no risk
28% of the participants claimed they have no experience in investment. Mr. Lee said it tells us something about the public’s views on investment: Investment involves risks and they can avoid economic loss by not making any investment. Nevertheless, he emphasized that these non-investors ignore the risks caused by other factors such as inflation and the increasing life expectancy.
The price index keeps rising every year while the deposit rate stays at extremely low level. If you deposit all your money in bank, the purchasing power of your money will be eroded and your standard of living in future will be affected. Mr. Lee gave an example: If a person saves $5000 in bank, he will have $1.8 million after 30 years given that the current deposit rate is below 1%. If the inflation forecast is 4.5% per year, the purchasing power of $1.8 million after 30 years would be much less than that of today. Moreover, medical advances have extended life expectancy. The average life expectancy of Hong Kong citizens is currently above 80 years old, while the retirement age is about 60 to 65. The absence of income source after retirement could mean that your savings may not be able to support your medical and living expenses for the next 20 years. Additionally, inflation will eclipse your purchasing power and lower your living standard. In short, not making any investment does not mean that you can stay away from risks.
Establish the right attitude of investment
Although investment involves risks, it can also be regarded as an approach of wealth preservation and even appreciation. To reduce investment risks, we should learn how to invest. Mr. Lee advised that understanding the reasons you invest is the first step that encourages yourself to learn how to invest. We can start by setting our goals in life, such as making better arrangement for your children’s education or your living after retirement. By evaluating the difference between your goals and the expected increase in wealth, you will come to understand the objective and importance of investment.
The second step is to understand the types of and the differences between investment products and how they operate and the risks involved. “We can gain investment knowledge through different channels such as the websites of HKIFA and the Investor Education Centre. Besides, newspapers provide a lot of financial and investment news and information. Cultivating the habit of reading financial news can enhance the level of investment knowledge,” said Mr. Lee.
The final and the most important step is participation. By participating in investment, we can accumulate experience and knowledge. As market fluctuations have direct impact on our investment, we will therefore pay more attention to market trends and development, examine the problems concerning investment and find out related information.
Manage Investment Risk
Every investment tool involves risks and as such investors must understand the characteristics and risk management of each tool, according to Mr. Lee. For example, stock market is easily influenced by political and economic factors. Investors making substantial investment in a single stock can gain considerable return if the price of that stock rises. However, if the stock price drops dramatically, investors will incur huge loss. Investors should select different types of stocks to diversify their investment risks, but this method may not be applicable to investors with limited capital because one board lot of a blue chip stock can cost several thousand dollars.
MPF is another type of fund investment that is the most familiar to and participated in by the public. In fact, there is a wide variety of funds available in the market, and they are not affected by geographical limitation. On top of stock funds, other choices such as bond funds, REITs, commodity funds and foreign exchange funds are also available for investors to choose from. Mr. Lee pointed out that a fund only consists of 5-10% of investment in a specific stock or bond so as to reduce risks. Unless the whole portfolio is affected, the movement of a specific security would have little impact on the value of the portfolio, and it is possible that the loss can be compensated by the gains from other assets in the portfolio. Investors should also consider the costs of investment and other factors before making any investment decision.
Conclusion
Mr. Lee noted that the MPF scheme launched in 2000 has raised the awareness among the general public towards wealth management, investment and fund management. However, the findings and analysis from HKIFA reveal that public have little understanding about investment, the risks from investing or not investing, and the importance of wealth management in the course of their lives. Therefore, Mr. Lee suggested the public to read more information about financial planning and actively learn how to manage their personal wealth. Mr. Lee added, “The public should understand the products before making any investment decisions; and if you have already invested, you should understand even more about your investment.”
This article is based on a joint research project between Prof. Mike K P SO and FUNG Wai Kit Jacky, Year 3 student of Risk Management and Business Intelligence Program. Jacky is the champion of Mr Armin and Mrs Lillian Kitchell Undergraduate Research Award 2013 of the Undergraduate Research Opportunities Program (UROP) in HKUST. For detail, please visit http://urop.ust.hk/List_of_Awardees_2013.html
Prof Tony F CHAN (left), President of HKUST, presented the award to FUNG Wai Kit Jacky. Prof Mike K P SO (right) is the supervisor on Jacky’s reserach project.
香港科技大學校長陳繁昌教授
(左) 頒贈獎項予馮瑋傑同學,
蘇家培教授 (右) 為其研究項
目的指導導師。
Introduction
Nowadays, copulas are commonly used in time series models. They can completely describe the dependence structure between time series and provide a powerful method for modeling multivariate distribution. Using the copula approach, we can separate the dependence structure from the marginal distribution so that the multivariate distribution can be constructed easily and flexibly. There
have been a lot of dynamic copula models proposed in the literature where existing models are mostly parametric. However, one of the disadvantages of a parametric method is that it would lead to a poor result if the assumption of the parametric form of the copula function is incorrect. Given the weakness of the current approach, we introduce a nonparametric method to develop the copula model.
In our research, we mainly focus on estimating bivariate copula function. We suggest estimating the copula function dynamically with an observation driven process and nonparametrically using kernel functions. Nonparametric estimation is robust since it does not rely on data belonging to any particular distribution. Using kernel functions to estimate the copula function nonparametrically can give a smooth and continuous copula function. Moreover, we allow the copula function to change dynamically over time so that the model can be applied to time-series data.
Specifically, the model construction can be divided into three steps. In the first step, we transform a uniform time series process into standard normal variables, and in order to remove the boundary bias since the domain of a bivariate copula is [0,1]2. In the second step, we construct the joint distribution of and dynamically and nonparametrically. Denote and the time-varying distribution is given by
where α, β, and are the parameters in the dynamic process equation. In our dynamic process, the distribution can be expressed as the weighted average of three components; the unconditional distribution, , the kernel component of the past observation , and the past distribution . In the last step, we convert the distribution into a valid copula function. can be transformed back to their respective uniform margins using the inversion method. Based on Sklar's theorem, the inversion method can produce a valid copula function. Denote the margins of the distribution by and . The copula function is given by
We consider a set of exchange rate data Euro-USD and Yen-USD from year 2007 to 2010. Using the copula-based approach, the marginal behavior and dependence structure can be specified separately. For the marginal model, we use an AR(1)-GARCH(1,1) model, which is commonly used in time series process. Autoregressive (AR) model can describe the time series process of the variable, while Generalized Autoregressive Conditional Heteroskedasticity (GARCH) model can describe the dynamic process of variance of the variable. For the copula model, we use our nonparametric dynamic copula model and also Engle’s dynamic conditional correlation model as a benchmark model.
After constructing our model and the benchmark model, we compare the performance between the two models. We use three goodness-of-fit tests: Kolmogorov-Smirnov test, Anderson-Darling test and Chi-square test. The results are shown in the following table:
From the results, our model seems to fit into the data better since the p-values of the three goodness-of-fit tests are all higher than the DCC model. However, we do not intend to claim that our model is better than the DCC model in any time series data. Our model can provide an alternative to describe the dependence structure between time series using a copula-based approach in a nonparametric way.
Lastly, we want to study the dependence properties between the series. Using our model, we plot the dependence graph using Blomqvist’s beta, which can be calculated using the formula 4C
t(1/2,1/2)-1, as the
dependence measurement. The value of Blomqvist’s beta ranges between -1 and 1. When the value is near 0, the two variables are only weakly dependent. When the value approaches the boundary, then two variables have a higher degree of association. The dependence plot is shown in the graph below:
As the graph shows, the Blomqvist's beta between the two series moves between 0 and 0.3 in the time period. Also, it can be noted that during the year 2008, the dependence structure is not very stable. The value fluctuates rapidly. The instability of the dependence between the two exchange rates during that time period would have a heavy impact on global portfolios for international diversification. Therefore, for a portfolio manager, if he can detect the instability of the dependence between the two assets at that time, he can respond by adjusting the portfolio weights promptly so that the risk of the portfolio can be controlled properly.
Conclusion
It is crucial to specify a correct time series model so that the dependence structure between the series can be uncovered. In the research, we have proposed a new copula model, the nonparametric dynamic copula model. Our model can provide an alternative method to model the copula function to analyze time series data. In the future, we will consider extending our model to higher dimension to study the dependence structure between multivariate time series data, which can be very useful in finance and risk management.
Symposium on Risk Management and Business Intelligence 20132013 風險管理及商業智能學研討會 The RMBI Program of HKUST held the fifth symposium on Risk Management and Business Intelligence on 20 April 2013 to offer a diversity of perspectives. Dr. Eden Y Woon, JP, Vice President for Institutional Advancement of HKUST was the officiating guest to the opening ceremony. The Symposium featured a wide range of high profile speakers from academic, banking, asset management, consultancy and healthcare sectors. It brought together almost 300 experts and education practitioners to exchange their ideas and updates on Risk Management (RM) and Business Intelligence (BI).
The first speech was presented by Mr. Vincent Lam, CFO of VMS Investment Group. He explained the importance of RM in the hedge fund and private equity industry by summarizing the changes in the industry’s risk awareness before and after year 2000.
The next speech was presented by Mr. Coleman Tse, General Manager of the Business Construction unit of Hong Kong Quality Assurance Agency. He described business contingency plan as part of RM in a company, related closely to information security management and IT management, and RM is an important part of overall corporate management.
Mr. David K.T. Cheung, Senior Vice President in Credit Management Department of Wing Lung Bank Limited, subsidiary of China Merchants Bank, shared the roles and structure of BI in credit risk management. He pointed out that transformation requires data mapping and systems integration, which would be one of the great challenges in developing BI in the banking sector.
Mr. Stephen Chiu, Advisor of Institute of Operational Risk, followed with a speech on the topic of restructuring. He gave an overview of how the banking industry was affected by the regulations launched after the bankruptcy of Lehman Brothers, such as the capital requirement for banks.
The officiating guest, Dr. Eden Y Woon, JP, Vice President for Institutional Advancement of HKUST (middle), symposium speakers and program professors. 主禮嘉賓香港科技大學副校長(大學拓展)翁以登博士大平紳
Year 2 student of Risk Management & Business Intelligence ProgramMC of the Symposium on Risk Management and Business Intelligence 2013風險管理及商業智能學課程二年級學生
It has been three years since the launch of the RMBI newsletter. Other than reporting recent market trend through interviews, I am pleased to share with you that this issue also contains articles written by a risk professional and an oversea scholar, and a research note extracted from a risk research project. After stepping down from the RMBI program directorship starting from this semester, this issue will be the last one supervised by me in the near future. Thank you for your interest and support to the RMBI newsletters.
「風險薈訊」創刊至今已有三年。我很高興看到今期不但有報導巿場最新發
展的專訪,更有風險管理專業人士和海外學者就相關議題所撰寫的文章,以
及風險管理專題的學術研究摘要。隨著我從本學期起不再是風險管理及商業
智能學課程主任,今期的「風險薈訊」將是在我督導下的最後一期。我謹多
謝各位過去對「風險薈訊」的興趣及一直以來的支持。
Prof Mike K P SO蘇家培教授
A healthcare perspective was presented by Dr. Chun Por Wong, JP, Chief of Service of Integrated Medical Services, Consultant and Head, Department of Geriatrics of Ruttonjee and Tang Shiu Kin Hospitals. Dr. Wong, JP, delighted the audience with his presentation on how analytics in health informatics contributes to better patient care. The Hospital Authority Clinical Management System makes standardized patient data available to all public hospitals and lay out a good database for analysis. Dr. Wong, JP, shared his risk prediction model and illustrated how BI is implemented in his modelling methodology.
Dr. Haksun Li, CEO of Numerical Method Inc presented trading and investment strategies from a quantitative approach. Instead of questioning whether an investment strategy is effective, Dr. Li focused on “When does a strategy work and how do we detect when the strategy becomes ineffective before substantial loss is incurred?”
Prof. Mike So, Program Director of the Risk Management and Business Intelligence Program at HKUST, emphasized the importance of interdisciplinary education, research and practice in his closing remarks for the symposium. Furthermore, he highlighted a few indicators of credit crunch & financial catastrophe and shared RMBI students’ achievement in academic research and involvement in the RMBI Newsletter.
律敦治及鄧肇堅醫院老人科顧問醫生及綜合內科部門主管黃春波醫生太
平紳士,分享了運用健康信息的分析去改善病人護理的心得。醫院管理
局臨床管理系統有統一的標準,是一個極之有用的數據庫,不但能為全
港所有公立醫院提供標準化的病人數據,並可供分析之用。黃醫生亦分
享了他的風險預測模型,並說明如何在模型中實踐商業智能。
數值方法公司行政總裁李克辛博士以定量方法展示買賣及投資策略。李
博士主張,在投資時需認清策略在哪些時間可行,及應訂立方法在造成
重大的金錢損失之前判斷策略於何時變得不可行,而不應只著眼於考慮
所採取的投資策略是否好的策略。
香港科技大學風險管理及商業智能學課程主任蘇家培教授在總結時强調
跨學科教育、研究和實踐的重要性。蘇教授講解了幾項信貸緊縮及金融
災難指標,並分享了風險管理及商業智能學學生在學術研究方面的成
就,以及對課程新聞報「風險薈訊」的積極參與。
RMBI Newsletter Issue 6 風險薈訊第六期
September, 2013二零一三年九月
Advisory Committee:Prof Mike K P SO 蘇家培教授
Dr. Adela S M LAU 劉秀梅博士
Miss Sandra M K WONG 黃銘君小姐
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