Value of ERM: ERM Increases the Credit Rating

There are many benefits that ERM brings to the organization. The followings are some of the most tangible value of ERM for organization, especially corporations:

  • ERM increases the credit rating
  • ERM creates stronger governance and compliance
  • ERM helps organization identify and exploit strategic opportunities

ERM increases the credit rating

A company’s credit rating has become vital to the borrowing power of organization, which is where ERM comes into play. Starting 2005, Standard & Poor’s (S&P) began analyzing the industry’s ERM practices, developing criteria for assessing the ERM procedures.

They started with financial institutions and insurance companies, then energy companies, and now all type of industries. In this regard, the ERM analysis provides insight into those companies’ management capabilities and corporate governance. In evaluating the credit ratings, S&P will focus on two universal components of ERM i.e. risk management culture and strategic risk management.

Risk management culture includes:

  • Risk management organizational and governance structure;
  • Roles, capabilities and accountability of risk management staff;
  • Risk management communications and transparency;
  • Risk management policies and metrics; and
  • The influence of risk management on budgeting and management compensation.
  • Strategic risk management includes:

Management’s view of the most consequential risks, including their likelihood and potential effect on credit; Frequency with which top risks are identified and how often the identification is examined and updated; Influence of risk sensitivity on liability management and financing decisions; and The role of risk management in strategic decision making.

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