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Businesses urged to beware of “polycrisis” of risk – Clyde & Co

Businesses urged to beware of “polycrisis” of risk – Clyde & Co | Insurance Business America

More than half agree that risk landscape “many times more complex” than it was three years ago

Risk Management News

Kenneth Araullo

Increased economic volatility, geopolitical upheaval, and the rise of AI have combined to elevate corporate threat levels to their highest in 12 years, according to Clyde & Co’s annual Corporate Risk Radar.

The survey, conducted in partnership with research consultancy Winmark Global, involved C-suite decision-makers, in-house legal teams, and General Counsel. It found that escalating threats on multiple fronts are creating a “polycrisis” of risk.

This has significantly impacted corporate decision-making, with risk caution estimated to be costing companies up to 5% of their revenues. Over a quarter of respondents indicated that heightened risk perception was hindering bold decision-making.

Economic risk, encompassing inflation, interest rates, and currency volatility, was identified as the primary threat by business leaders. This was followed by “people” challenges, which include attracting and retaining talent, upskilling, management, and succession planning.

The impact of AI and the associated risks were increasingly evident in the Corporate Risk Radar. While respondents acknowledged AI as a potential source of competitive advantage, there was an urgency to integrate this technology, driven by a “gold rush” mentality and fear of being left behind.

Concerns about divergent and often contradictory regulations on AI were highlighted, forming part of a broader worry about the regulatory burden on companies. Regulatory and Compliance risk emerged as the joint second biggest issue, rising 9% from the 2023 findings.

Geopolitical risk also surged, increasing by 11% from the previous year. Persistent regional conflicts and political uncertainty, exacerbated by a year of unprecedented global elections, were significant contributors.

Dealing with risks that were “never on their radar”

“Organisations are having to deal with risks that were never on their radar in the past. An unpredictable economic environment with shorter and more volatile cycles is being fuelled by growing geopolitical tensions. In response, we are seeing a proliferation of sanctions and a greater regulatory burden which organisations must now navigate,” Clyde & Co partner Eva-Maria Barbosa (pictured above, left) said.

“Add to this the growing impact of AI and the sheer number of risks could feel overwhelming for any business. With all of this to contend with, effective planning and risk prioritisation is becoming crucial, with more and more companies understanding the importance of consistent horizon scanning,” Barbosa explained.

“This year’s report shows that the business of doing business has become more unpredictable than ever. Most of us have now come to terms with the fact that there is no longer such a thing as ‘normal’ and that a different mindset is needed when assessing and responding to risk,” Clyde & Co senior partner Carolena Gordon (pictured above, right) said.

“Navigating risk is not just a defensive play but a crucial enabler of commercial opportunity and global economic activity. It is encouraging to see that, despite the headwinds, businesses are increasingly taking a proactive approach to risk management,” Gordon said.

The report also highlighted that leaders felt least prepared for market disruption, including AI, surpassing concerns about climate change, geopolitical, and societal risks. General Counsel expressed the lowest confidence in their readiness to deal with market disruption, possibly reflecting their close proximity to these risks compared to other leaders and board members.

Respondents noted that scenario planning and risk horizon scanning have become much more integral to their roles than a few years ago. Some respondents also pointed out growing tensions between boards and executive risk management, suggesting that boards may rely too heavily on executives to identify and present risks.

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