Global Risks

How business leaders can mitigate against global risks

A giant piece of Ice breaks off the Perito Moreno Glacier in Patagonia, Argentina - risk

Climate risks, among others, have huge ripple effects on the global economy. Image: Getty Images/iStockphoto.

Svein Tyldum
Chief Executive Officer, North Asia, Marsh McLennan
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This article is part of: Annual Meeting of the New Champions
  • In 2024 many of the world's key economies will be voting in elections – in particular the US presidential race.
  • This will have huge implications for global trade policies, geopolitical relations and economic development.
  • Business leaders must rethink their approach to risk management to mitigate against geopolitical and economic risks.

According to the World Economic Forum’s Global Risks Report 2024, the top-of-mind concerns among Asia’s executives are economic related: 7 out of 11 markets consider “economic downturn” as the top risk, followed by concerns about talent shortage and inflation.

Although over 60% of the top five risk concerns among Asia’s executives comprise of economic risks, the global aggregate paints a different picture. The report identified misinformation and disinformation as the top risk, followed by extreme weather events, societal polarisation, cyber insecurity, and interstate armed conflict — pointing to a highly complex and varied risk landscape with potentially compounding impacts.

Top 5 risks of concern among executives in Asia.
Top 5 risks of concern among executives in Asia. Image: Marsh McLennan

Elections and extreme weather exacerbate risk impacts

Further exacerbating uncertainty in 2024 is political change. Countries contributing to over 60% of the world's economic output will be holding elections this year, with the outcome of the US presidential election potentially having major implications on global trade policies and economic development.

Meanwhile, climate change also complicates the impact of risks. Asia is warming at a faster rate than the global average and the warming trend has nearly doubled since the 1961 to 1990 period. Extreme weather events, which are increasing in frequency and severity, can have far-reaching effects on critical infrastructure, agricultural output, public health and the economy.

Have you read?
  • Global Risks Report 2024

It is estimated that Asia’s developing economies will need least $1.1 trillion of investments annually to meet climate mitigation and adaptation needs, but the region is grappling with a shortfall of at least $815 billion in funding. Climate inaction by the private sector is likely to result in massive losses especially in vulnerable industries such as manufacturing, agriculture and construction.

Geopolitical tensions, economic downturn, and climate risks among other risks result in ripple effects such as trade disruptions or regulatory changes, adding uncertainty especially for business with global ambitions. Risks can no longer be managed in silos, instead requiring an enterprise risk management approach to mitigate them.

Automotive industry: Balancing global ambition and risk management

The recent growth of automotive industry, specifically the electric vehicle (EV) sector, serves as an example of challenges businesses face as they seek to establish a global presence:

1. Geopolitical and economic risks

Geopolitically driven incidents such as the Red Sea crisis can increase costs and product delivery timelines, and inflict losses to critical components and cargo shipments, including EV components.

Changing trade policies also hinder expansion plans. For instance, foreign governments are considering imposing measures against China-made EVs, with the US recently raising tariffs from 25% to 100% in May 2024.

2. Supply chain disruption risk

Earlier this year, Tesla suspended some production due to shortage of components and Chinese automakers were forced to delay deliveries when a computing unit supplier faced production issues arising from a component shortage.

3. ESG risks

The automotive industry is one of the industries most vulnerable to extreme climate events. China’s automotive businesses face scrutiny over labour practices, including health and safety and working conditions, as well as carbon emissions.

These risks highlight the need for businesses to adopt a proactive and intertwined risk management approach regardless of industry.

Proactive risk management to mitigate geopolitical and economic risks

While geopolitical tensions can add uncertainties to the global risk landscape, having oversight of investments across geographies and monitoring short- and long-term economic, political and security risk trends can help businesses anticipate risk and optimally calibrate their risk mitigation and transfer programmes.

Businesses should consider getting credible, real-time quantitative country risk exposures analysis across insurable perils (e.g. expropriation risk) and understand the underlying structural factors (e.g. geopolitical instability or economic volatility) in their business environment.

Supply-value chain mapping is an essential exercise for businesses to understand the potential weak points – both upstream and downstream – that may be vulnerable to disruption as they diversify into new geographies.

When formulating risk management actions, businesses should also avoid over-prioritising higher value inputs (e.g. microprocessors) versus lower value inputs (e.g. rubber gaskets), as any disruption to the latter can also result in significant financial and operational impacts.

A robust mapping exercise should account for potential infrastructure readiness (e.g. reliability of electricity, clean water supply and transportation networks) and the evolving regulatory requirements in these new locations (e.g. tariffs, minimum wage, labour policies), which can pose significant risks if left unaddressed.


Integrate ESG risks with enterprise risk management frameworks

Environmental, social, and governance (ESG) issues can translate into intertwined risks and leveraging the right data and models to obtain outcomes that inform business regarding climate change and new extremes is necessary to support the appropriate decisions. Businesses can also partner with trusted risk advisor with industry-specific expertise to access climate risk with these objectives in mind:

  • Accurately diagnose and price physical climate change risks and obtain outputs necessary to meet regulatory requirements.
  • Identify and assess risk exposures in the supply network to obtain practical recommendations to enhance risk resilience.
  • Enable access to risk capital pools and alternative insurance products such as parametric insurance.

An enterprise risk management approach also involves calibrating the right workforce strategy across three key concerns: pay equity, skills availability, and talent mobility. This is a challenge that automotive businesses face as they set up operations in Thailand and the Philippines. For each key concern, vital considerations include:

  • Ensuring pay, rewards, and benefits are equitable across job bands.
  • Gaining access to local talent pools and bridging skills gaps with reskilling and upskilling.
  • Putting a global mobility strategy and programme in place to facilitate the relocation of skilled talent, with competitive compensation and incentives that address their financial needs and well-being.

Enabling growth with adaptable and outcome-focused risk management

As intertwined global risks continue to cast uncertainty over businesses, it is imperative to embed data-driven, expert-led risk management insights into enterprise risk management strategy. Proactive and interconnected risk management actions will be critical in helping businesses navigate the compounded impacts of geopolitical, economic, supply chain, climate, and sustainability risks and prepare businesses to take advantage of growth opportunities worldwide while mitigating the downsides.

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Global RisksLeadershipGeo-Economics and Politics
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