A report produced by a group of Chief Risk Officers is unlikely to provide cheery reading. And the first Chief Risk Officers Outlook report produced by The World Economic Forum doesn’t disappoint in that regard!
The report, released in July, provides predictions for potential risks to global business in the year 2023. It comes at a time of economic instability and political tensions around the world. The aim of this report is to provide a midyear pulse check, gathering insights from on-the-ground risk practitioners. It draws on the findings of a survey conducted among the World Economic Forum’s community of chief risk officers.
The survey asked participants to assess the likely level of global volatility across five broad areas: geopolitical relations, economy, domestic politics, society, and technology. They were also asked to identify up to five risks that they anticipate will have a severe impact on their organizations in the remaining months of 2023.
The results of this survey indicate a range of global risks that have the potential to threaten economic growth, destabilize global markets, and disrupt broader business operations over the next six months. These risks highlight areas where businesses need to be vigilant and prepared for potential challenges ahead.
The study deliberately excluded so-called ‘perma-risks’ such as chronic and infectious diseases, extreme weather events and natural disasters. Given the evident signs of the effects of climate change, such as wildfires across the world and the highest ever sea temperatures, this feels like a glaring omission.
One significant area identified as having high volatility is geopolitical relations. With ongoing tensions between major powers such as China and the United States, there is an increased risk of conflicts escalating into full-scale trade wars or even military confrontations. Such events would undoubtedly have severe implications for businesses operating globally. Ukraine looms large in their minds.
Economic risks also feature prominently in this outlook, with 85% of the risk officers citing them as a concern. The survey reveals concerns over inflationary pressures and rising interest rates in several major economies. These factors could lead to reduced consumer spending power and increased borrowing costs for businesses, potentially dampening economic growth worldwide.
Domestic politics is another area where potential risks lie. With many countries experiencing political polarization and social unrest, there is an increased likelihood of policy changes that could impact businesses operating within these jurisdictions. Changes in regulations or shifts in government policies can create uncertainty for businesses and affect their ability to plan effectively.
Societal factors are also highlighted as important considerations for chief risk officers. Issues such as income inequality, climate change, and demographic shifts can all have profound effects on businesses. For example, increased focus on sustainability and environmental responsibility may require companies to adapt their practices or face reputational risks.
Lastly, the outlook identifies technology as a key area of concern. Rapid advancements in technologies such as artificial intelligence and automation can disrupt industries and render certain job roles obsolete. Businesses need to stay agile and embrace digital transformation to remain competitive in this rapidly evolving landscape.
Overall, the World Economic Forum’s Chief Risk Officers Outlook paints a picture of a complex and uncertain global business environment in 2023. The identified risks span across geopolitical relations, economy, domestic politics, society, and technology. It is crucial for businesses to be proactive in identifying potential threats and developing strategies to mitigate them.
To navigate these challenges successfully, organizations should invest in robust risk management frameworks that enable them to anticipate potential disruptions accurately. This includes regularly monitoring geopolitical developments, conducting scenario analyses to assess the impact of economic fluctuations on their operations, staying informed about regulatory changes that may affect their industry or region specifically.
In addition to these proactive measures taken by individual organizations themselves; collaboration with other stakeholders, such as governments and industry associations is also essential for managing global risks effectively.
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