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

The Energy & Resources Industry is heavily dependent on assets. Companies that manage these assets are typically confronted with compliance issues environmental and safety threats as well as aging equipment maintenance issues, and budget restrictions. All of these issues can be a major influence on the organization’s operational as well as its external and strategic success.

A comprehensive strategy for risk management is crucial to guard against these risks and to ensure that businesses can remain in a position to meet the needs of customers. This article outlines the most important areas of risk and asset management:

Counterparty risk management is focused on ensuring that key relationships (such as prime brokers, derivative counterparties, clearing banks and custodians) are creditworthy and it includes implementing failsafe procedures that protect against financial loss or reputational damage resulting from the failure of those partners. This is accomplished by vetting vendors and ensuring that the approval process does not just apply to the vendor, but also the services they provide.

Market risk is the potential for a decrease in the value of your portfolio and is a common issue that both asset managers and risk managers deal with but from slightly different perspectives. Portfolio managers manage their exposure to markets to limit unintentional bets on the market and other factors that affect risk management, while asset management focuses on managing crowded trades, liquidity, leverage, expected volatility and cash flow.

A robust asset and risk management program is essential for avoiding unexpected challenges and maximizing the impact of an organization’s assets. The three-line governance framework is a useful tool for identifying and minimizing the risks that could affect an organization’s performance.

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