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04

Risk management 'essential' for $100bn Arctic investment

Open-access content 13th April 2012

Investment in the Arctic could reach $100bn or more over the next 10 years but strong governance and risk management is needed to mitigate the region’s many challenges and risks, according to Lloyd’s.

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In a report published yesterday in association with Chatham House, the insurers said the Arctic climate was changing more rapidly than anywhere else on Earth, with implications for the region and the global environment.

These changes, and reducing sea ice, in particular, could extend oil and gas exploration, increase access to mineral wealth and open up potential new ice-free shipping routes, it said.

But Arctic opening – opportunity and risk in the high North said oil and gas developments and shipping all faced challenging conditions such as the extreme cold, prolonged periods of darkness in winter and the remoteness of Arctic locations.

The environment consequences of disasters in the Arctic could have the potential to be worse than in other regions, the report said, with the low levels of resilience in the region's eco-systems and high political sensitivity to disaster. This means companies operating in the region  face significant reputational risk, it said.

Lloyd's said the commercial opportunities available could encourage companies to take on greater business, operational and political risks, making comprehensive and rigorous risk management 'essential'.

Companies that can manage their own risks, using technologies and services most adapted to Arctic conditions, are likely to be the most commercially successful in the region, it said.

Richard Ward, chief executive of Lloyds, said: 'Risk management clearly has a critical role to play in helping businesses, governments and communities to manage these uncertainties and minimise risks.

'However, to do so effectively requires the most up to date information to analyse and control risks. There is a clear need for sustained investment in Arctic research.'

This article appeared in our April 2012 issue of The Actuary.
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