A qualitative measure of risk that reflects the maximum level of exposure to a risk factor that an investor (entity or individual) is prepared and willing to accept and take up as part of its efforts or attempts to fulfill its set plans or objectives (in pursuit of value). The risk assumed or taken up is meant to help an entity achieve its strategic goals.

Risk appetite relates to both amount of risk (acceptable risk level, or ARL) and type(s) of risk desired. For an entity, the risk appetite statement constitutes an integral part of its risk management framework. Risk appetite statements is customized to reflect an entity’s own characteristics (corporate form, sector, size, etc.). For example, larger more complex entities may have more detailed risk appetite statements, including more detailed risk tolerance statements and certain quantitative measures.