2023’s top risks 6 months on – according to Chief Risk Officers
1. Macroeconomic indicators
Inflation is falling, but in many countries, it’s still “stubbornly high” and continues to significantly impact the economic risk landscape… One major consequence is the rise in interest rates, which are now at their highest in Europe in at least 15 years.
This has lowered demand but pushed up borrowing costs … debt is “highly likely to have a severe impact on the organizations”
Many economies continue to experience strong labour market conditions. In fact, half of OECD member countries are reporting record highs in employment and labour force participation rates.
2. Pricing and/or supply disruptions of key inputs
CROs expect the highest levels of volatility in geopolitical and geoeconomic relations, which have a significant impact on supply chains.
…pricing and/or supply disruptions of critical resources, such as fuel, very likely to have a severe impact on organizations over the coming months.
In most major economies, food prices are above historical averages and the El Niño weather phenomenon could disrupt crop production and lead to water shortages.
3. Armed conflicts and/or use of weapons
More than 100 armed conflicts are happening across the globe today, with many organizations directly impacted, and others seeing indirect disruptions, such as to trade and supply chains.
“Conflict is not localized – it has knock-on effects due to global interdependencies.”
But it’s not just cross-border conflict that has an impact, intrastate violence, including strikes and riots, is predicted by almost a quarter of CROs to affect organizations in the next six months.
4. Regulatory changes, compliance and enforcement, encompassing developments related to green transition and AI
The upheaval caused by political developments in the world’s major economies is expected by almost half of respondents to the survey.
This could include both elections and regime change but also regulatory changes, compliance and enforcement, which half of CROs see as a top risk over the next six months.
These range from trade restrictions to regulatory developments relating to climate change and AI technologies, including the EU’s Artificial Intelligence Act.
Ethical and societal risks
“Ethical and social risks are far less black and white than regulatory compliance and are constantly evolving”
Among those risks are the ones posed by AI technologies. CROs said they understand these risks, but they all considered the development and deployment of AI to be “outpacing” management of these risks.
“The biggest risk is the lack of understanding about the pace of change and the implications of it,” said one CRO.
…fear that AI deployment and evolution will outpace society’s ability to understand and respond constructively