Three Lines of Asset and Risk Management for the Energy & Resources Industry

The Energy & Resources Industry is an asset-intensive. Companies who manage these assets are typically confronted with compliance issues, safety and environment threats, aging equipment, maintenance issues, and budget constraints. All of these factors could have a significant impact on the operational, external and strategic success of an enterprise.

A well-rounded approach to managing risk is essential to protect against these threats and to ensure that a company can keep up with the needs of customers. This article will highlight the key areas of risk and asset management:

Counterparty risk management is a procedure that focuses on ensuring that key relationships, like prime brokers, counterparties to derivatives, clearing banks, and custodians are creditworthy. It also includes failsafe procedures designed to guard against financial losses or reputational harm if the partners fail. This is achieved by vetting vendors and ensuring that the approval process doesn’t just apply to the vendor, but also the service they provide.

Market risk is a potential decrease in the value of your portfolio. Both asset managers and risk management are concerned about it, but from slightly different perspectives. Portfolio managers manage their exposures to the market to limit unintentional bets on market conditions and other variables while risk management concentrates on tackling crowded trades, leverage, liquidity, expected volatility and cash flow.

A strong program for managing risk and assets is vital to avoid unexpected challenges and maximizing the impact of the assets of an organization. The three lines of defense governance framework is a reliable approach to identifying and reducing the risks that can affect the performance of an organization.

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