Reward and Risk Appetites – Who’s Responsible?

Current governance practice regarding ‘who’ sets reward and risk appetite and associated tolerances is unclear and constantly under debate. Who is responsible for setting parameters to guide the organization in its quest to create and deliver value for its customers? Identifying responsibility for governing these vital parameters is straight forward and not at all complicated.

On one hand, there are those who feel the Board should set these operating parameters, while on the other hand, others suggest it is the CEO, in conjunction with the management team, who are expected to do so. In some cases, if it is not clearly stated, and the Board fails to explicitly set these parameters, or does not specifically provide approval for them, then it falls by default to management. What should it be?

The Board of Directors is ultimately responsible for setting reward appetite and tolerance, as well as, the organization’s risk appetite and tolerance. This is an expectation for profit and loss limitation to guide the CEO and senior management team in designing and executing strategy they feel is best suited for meeting the Board’s requirements.

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The Drive for Emissions Reduction in Alberta

Policy makers, legislators, forward thinking carbon emitters, and interested stakeholders in Alberta, Canada aim to facilitate significant reduction of carbon emissions and foster a transition to a low-carbon, if not carbon-free, energy future. This policy direction is embodied in the current NDP Government of Alberta’s Climate Leadership Plan and its cornerstone legislation The Climate Change Act (for complete details visit the website of law firm of Osler)

Alberta, like many jurisdictions throughout the world, is heavily reliant on the hydrocarbon industry – specifically in regards to conventional and heavy oil, natural gas, and petrochemicals, and supporting industries – agriculture and forestry sectors to provide good paying jobs, a higher standard of living, and tax and royalty revenues to the Government.

These sectors are traditional drivers of economic prosperity in Alberta. Yet, they result in large emissions of carbon – either through the production of commodities or use of the commodity elsewhere in the Province (or other jurisdictions throughout North America, and, perhaps, even the world).

Therefore, making the transition in Alberta to low-carbon sources of energy is ripe with opportunity and significant challenge. The Alberta Government has started the transition by taking concrete steps to abandon the use of coal in generating power in favor of using natural gas and other non-hydrocarbon sources for power (such as solar, wind, and other sources) and lowering carbon emissions from the extraction of the oil sands and hydrocarbons and in the use of natural gas to produce low emissions energy production in Alberta.

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