Paul R Kleindorfer

Risk analysis in industrial contexts consists of four integrated processes: (a) identifying underlying sources of risk; (b) determining the pathways by which such risks can materialize; (c) estimating the potential consequences of these risks under various scenarios; and (d) providing the means for mitigating and coping with these consequences. Specific risks, once identified, are usually characterized by the probability of their occurrence and the magnitude of their consequences, but many other attributes of risks may be of interest to individuals affected by these risks. Risks can have both positive and negative outcomes and can occur in any domain of a company's operations, from engineering to finance.

A great deal of work in corporate finance and insurance has gone into the design of efficient risk management instruments for risks that can be monetized (for example, Doherty 2000) and, to the extent that the consequences of these risks are borne by the owners of an enterprise, there are strong incentives for managers to make efficient choices in balancing risks and returns. This is not usually true for industrial risks having safety, health or environmental (SHE) impacts, since these impacts are often borne by the ecosystem and by uninvolved third parties, including future generations. Thus, for SHE risks, market forces are not usually sufficient to motivate a profit-oriented company to operate efficiently. Achieving efficient trade-offs here requires instead that industrial practice be tempered by regulation and public participation. Exactly how this should occur for various types of SHE risks has been a major area of development in the literature of industrial ecology and will be the focus of this chapter. It first considers the central drivers of risk analysis in industrial contexts, since this has motivated much of the research in this area. Thereafter, the chapter briefly reviews key elements of current approaches to industrial ecology (IE) for SHE risks.

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