A one-year risk horizon: still realistic in today's environment? In the context of IDW PS 340, a risk horizon of one year has become established in practice. This is formally accepted, but hard to follow in substance. Because many of the crises burdening companies today act over years or decades. A risk horizon of twelve months simply does not capture them. 🏗️ 1. Bureaucracy and regulation In Germany, planning and approval times have become so long that large projects cannot even start within a year, let alone unfold or offset risks. All risks arising from bureaucracy and regulation act in a structurally long-term way, they do not fit into a one-year window. ⚡ 2. Energy crisis and structurally rising prices No one expects energy prices to fall back to earlier levels within the next 12 months. Climate policy, CO2 pricing, geopolitical ruptures, and the loss of cheap supplier countries lead to permanently higher energy costs. The risk for energy-intensive business models is therefore a multi-year risk. 🌍 3. Geopolitics and supply chains The changed role of the United States, unstable major powers, conflicts in the Middle East: none of these developments will disappear within a year. Strategic dependencies only resolve over very long periods. 🛣️ 4. Germany's infrastructure crisis Wear and tear, an investment backlog, and overload will accompany Germany for decades. A company cannot “optimize its way out of the infrastructure” within 12 months. 🏭 5. Reality of industry: adaptation takes time Industrial companies need years to: • adapt business models • rebuild supply chains • replace equipment • realign products and markets Compared to this, a one-year risk horizon looks like a theoretical construct, not a real measure of economic risk-bearing capacity. 💡 What would be appropriate? For non-banks, a horizon of 5 to 10 years would be realistic, that is, the time companies actually need to respond to major risks. In banks, one year may work because risks can be hedged in the short term, but that does not hold for the real economy. ❓ What is your view? Is a one-year risk horizon still fitting given our long-term landscape of crises? Or do we need a new understanding of risk-bearing capacity that accounts for the actual response speed of industry?
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