Cambridge Taxonomy of Business Risks
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Cambridge Taxonomy of Business Risks, 2019
The analysis of publicly disclosed business risk registers in the Cambridge Risk Register Resource, the review of causes of corporate distress, compiled into the Cambridge Corporate Distress Catalogue, the initial macroeconomic threat taxonomy developed by the Cambridge Centre for Risk Studies in 2014 and the collation of various other taxonomies of principal and emerging risks have been summarised to propose the Cambridge Taxonomy of Business Risks version 2.0, see . 3.1
Structure
The Cambridge Taxonomy of Business Risks version 2.0 is shown in above with definitions included as Appendix A, B and C at the end of this document. The taxonomy is available interactively online at the Cambridge Business Risk Hub. This taxonomy attempts to organize the universe of business risks into a typology. It is organized into six broad classes of risks, see Table 2. Each of these main classes has several families of risks, and a family of risks may contain many types of risk. The hierarchy of Class : Family : Type is commonly used in structures of taxonomies and provides a useful organizing principle. Table 2: Cambridge Taxonomy of Business Risks, v2.0 Class Definitions (Source: Cambridge Centre for Risk Studies).
Class Financial Geopolitical Technology Environmental Social Governance
3.1.1
Class Definition Threats from the macroeconomy, financial markets, global economic value chains, industry or company-specific events lead to underperformance of corporates. Political and criminal deterioration in society, change in ideology, leadership and regulation of the authorities, politically charged conflicts within or between nation states threaten business operations and prospects. Targeted cyber attacks, critical infrastructure collapse, direct and indirect industrial accidents and the inability to keep up with advances in technology. Risks associated with acute natural hazard events, climate change, and human interactions with and exploitation of the environment. Socioeconomic trends in society, including evolving preferences, social norms, and demographics, as well as disease prevalence and developments in public health. Threats from compliance with existing and emerging regulation, litigation and strategic and tactical management decisions.
Hierarchical System
For a risk classification system to be useful it has to have a manageable number of categories, but also of sufficient granularity to be applied in more detail when appropriate, any taxonomy should be hierarchical and capable of subdivision to increasingly fine levels of resolution. The Cambridge taxonomy is designed as hierarchical, with three ranks of taxonomy defined initially, roughly shadowing the taxonomy of the animal kingdom, with primary classes, families, and genus types. Further subdivision into sub-types can be added. We have identified 6 primary classes and 37 families of risks. Each family is subdivided into risk types, with between 2 and 11 risk types in each family and a total of 175 risk types in the taxonomy. Types can be further subdivided as appropriate. For example the family of ‘Political Violence’ has the 4 risk types: •
Social Unrest
• • •
Terrorism Subnational Conflict & Civil War Coup d'État
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