BDO’s latest Global Risk Landscape report found the increase in risks meant 85 per cent of business leaders said their focus is on the connections between them rather than individual risk factors.
In the Australian and Asia Pacific region, 78 per cent of business leaders agree that risks are becoming more interconnected and complex.
The new research - which surveyed 500 C-suite executives from across the world - saw risk leaders identify these combinations as posing the biggest threat to their business:
- 23 per cent said business interruption combined with capital/funding
- 17 per cent said environmental combined with supply chain
- 13 per cent said cyber attack combined with fraud
- 12 per cent said cyber attack combined with brand damage
- 9 per cent said geopolitical combined with supply chain
“More and more we are seeing individual risks overlapping and amplifying each other with devastating and unexpected consequences. This is the risk multiplier effect and it can be more potent than individual risk factors,” said Marita Corbett, BDO’s National Leader for Risk Advisory in Australia.
“Today’s C-suite and boards are dealing with fragile supply chains, cyber criminals using AI to target high profile companies, an ever-evolving digital world, skills shortages, and climate goals that they must work to achieve. When these risks combine, the impact can be huge. Many of the world’s largest companies have already embraced a risk multiplier mindset, but companies of all sizes should be thinking about risk in the same way.”
Marita said studying the risk multiplier effect will create new risks that businesses had not thought about or dealt with before. “One example is the intersection of cyber risk and supply chain risk where one of your suppliers is targeted and their operations are impacted. For some companies, this will be a brand new threat that wasn’t on their risk radar,” she said.
In the Australian and Asia Pacific region, risk leaders said they feel least prepared to respond to environmental risk, economic slowdown and cyber attacks. Globally, 44 per cent of leaders said they believe climate change poses an existential risk to their business.
“A risk-welcoming mindset is really important in this type of environment. The risks are inevitable, and they are always changing, so acknowledging this and preparing accordingly is crucial,” Marita said.
“The best way to create a proactive, risk-welcoming mindset and culture is to have a risk expert firmly embedded in the C-suite, and we can see companies are embracing this with just under two third of respondents saying this was a C-suite position in their company. Another third of companies surveyed said they were considering a C-suite risk expert in the future,” she said.
“It is also critical that leaders bring together expertise from across their organisation to understand and manage risk multipliers, but our research shows only 26 per cent of companies are doing this. Not everyone needs to be an expert on risk management, but everybody needs to have that awareness. Risk management must become part of the entire company’s strategy and culture, and this starts from the top.”
From a workforce risk perspective, leaders named turnover and retention (47 per cent), contingent worker arrangements (43 per cent) and recruitment challenges (41 per cent) as the main human capital risks of the time. Attracting and retaining top talent proved to be a risk on a global scale.
“Interestingly, only 19 per cent of leaders said they offer their employees the chance to participate in social responsibility projects, which is something that we know is important to younger generations of workers,” Marita said.
“For HR professionals to deal with these risks proactively and properly, they must examine the intersecting risks that magnify these workforce challenges. For example, when asked about the biggest risk multipliers by industry, only the healthcare and life sciences industries named people alongside environmental risks. Other sectors and industries are still coming to understand these headline issues, and their direct or indirect impact on their organisations’ success,” Marita said.
In the Australian and Asia Pacific region, 66 per cent of business leaders said regulatory changes, including new ESG reporting, posed a somewhat significant or significant threat to their business.
“Mitigating the regulatory risks created by more stringent ESG requirements is something businesses across the globe have to manage. For businesses in the APAC region seeking to work with China, it is imperative to keep up with the latest regulations, proactively mitigate the risks with the help of risk experts, and operate sustainably as part of a bigger regional and global commitment to meeting ESG responsibilities,” Marita said.
“This is no doubt a risky environment to operate in - an improved and more proactive approach is particularly timely. Business leaders must move away from a preventative approach and focus on mitigating the inevitable risks in an era where change and upheaval are unavoidable and constant.”
This article, written by Marita Corbett, BDO's National Leader, Risk Advisory, first appeared on BDO Australia's website on 18 July 2023 HERE.