Building a risk culture: driving risk management up the boardroom agenda

Multi-ethnic business people smiling during a meeting in conference room. Team of professionals having meeting in boardroom.

As the world makes a concerted push to tackle climate change through a global energy transition, the Middle East — and in particular GCC countries — has carved out an optimistic path for its journey through transition.

Key to the region’s resilience during the energy transition is the diversification of its countries’ GDPs and a reduction in the reliance on oil-based revenue streams.

The GCC countries have identified the need to diversify their economies and prioritize key areas such as tourism, hospitality, finance, healthcare, and real estate within the region. However, global trends are posing challenges to these objectives and adding complexity to the risk landscape.

It is important to understand how these global trends are impacting three crucial factors: finance, talent, and global stability. Enhancing risk resilience in these areas is essential to navigate the evolving landscape. Furthermore, it is important to assess the potential impact of these critical risks on organizations operating within the GCC.

The aim of 2030 Vision is to help GCC countries diversify their GDPs by increasing the focus on other sectors like tourism, hospitality, finance, healthcare, real estate etc. within the region. However, global trends are threatening these objectives and expanding 2030 Vision’s already novel risk landscape.

The question is, how are global trends impacting the three key ingredients for 2030 Vision — finance, talent, and global stability — and how can risk resilience in these spaces be increased? And, most importantly, what impact will these critical risks have on your organizations?

Eminent risks for the Middle East region are either economic or societal

According to the Global Risks Report, developed by the World Economic Forum (WEF) in collaboration with Marsh McLennan and other partners, the risks deemed most critical for the short and medium term by leaders in the Middle East are:

Economic downturn (such as recession or stagnation)
Inflation
Unemployment
Infectious diseases
Talent shortages

These risks fall into two camps: Economic and societal.

A global economic downturn could result in less consumer spending impacting businesses across various sectors such as retail, hospitality, and leisure, while inflation could lead to increased operational costs that companies may experience rising costs of goods and services, impacting profit margins unless they can pass on these costs to consumers. Ultimately, these economic risks could mean a decline in investment for companies in the region, with less interest from venture capitalists and issues accessing credit. Businesses that are not well positioned may also face liquidity issues.

A domestic economic downturn also opens the door for societal issues, such as unemployment and social unrest. Businesses in the region could experience a double hit, from both tourists and domestic customers, with unemployment impacting the purchasing power of the people.

Despite potentially increasing unemployment levels, people risk remains critical. As 2030 Vision establishes new sectors within the region, the skills gap continues to widen. Investment will be needed to attract workforces with needed expertise. As well as increased recruitment costs, companies may face further challenges with both retention and critical-role succession planning. This is poignant given the expectations of the heavily Gen Z workforces of the region.

Though these challenges relate to 2030 Vision, it is clear to see how the shifting risk landscape could impact all businesses in the region.

Resilience within the business world is key to achieving regional goals

To counter the impact of the region’s changing risk landscape, while bolstering 2030 Vision efforts to diversify GDP revenue streams, it is essential to build resilience against these risks. Companies with good risk resilience will be addressing risks that are critical to their environment.

There are three areas in particular where companies can focus their risk resilience efforts.

Investing in people

Attracting the right talent may involve exploring new ways of working as the Gen Z workforce is accustomed to more flexible approaches. Consideration may also need to be given to benefits packages, approaches to mental health and wellbeing, and the company’s corporate social responsibility. A company’s reputation can be either a help or a hindrance when trying to attract specialist talent.

Once talent has been obtained and retained, consideration needs to be given to succession planning. How much corporate knowledge and intel is stored within specific personnel? Succession planning needs to go beyond preparing for retiring workers.

Building supply chain resilience

There are a number of things to consider when addressing supply chain resilience. This is due to the numerous ways the supply chain is currently at risk.

The increase in extreme weather continues to have a detrimental effect on trade routes. The Panama Canal, for example, has reduced shipping crossing by 36% due to last year’s severe droughts. Even efforts to counter climate change carry their own risks for businesses, with regulatory disclosure shining a light on third-party suppliers. This could lead to loss of business for suppliers, or a need for finding new more expensive or complex suppliers for buyers.

Businesses will also need to increase resilience against inflation, which can also impact surety and trade credit.

Collaborative thinking

Ultimately, risk resilience will increase for companies when they accept that they and their peers have a collective goal in helping the region to achieve 2030 Vision. Through collaboration and knowledge sharing, all involved will thrive confidently. The COVID-19 pandemic required the removal of invisible walls across sectors, and in doing so demonstrated the importance and effectiveness of working collaboratively. It is indeed possible to maintain competitive advantage, while collectively addressing risk resilience challenges.

Risk Professionals will play a critical role in an organization’s ability to thrive

While addressing critical short- and medium-term risks is paramount for the resilience of companies in the region, long-term risks also need to be front of mind. Addressing the present economic and societal risks will ultimately support the global shifts to mitigate and adapt to climate change.

It is crucial that risk resilience is a core part of boardroom agendas and incorporated into business strategies and protocols. Moving forward regulatory requirements will call for not just environmental but also consideration towards social and governance aspects of ESG.

Through effective strategies and solid top-down approaches, a culture of risk management can be permeated throughout an organization. Key to achieving this will be solid understanding of risk through assessment and ensuring that risk management frameworks are fully integrated into the organizational strategies. These goals are achievable when risk professionals have a seat at the boardroom table.

Risk mitigation and management has always played a critical role in driving organizational resilience. Today, amid an evolving risk landscape, the role of the risk professional is tantamount to a company’s success and its ability to thrive despite the risks on the horizon.