Inflation. War. Energy. The risks facing Swedish companies today may seem eerily familiar to many business leaders. Not because they’ve had direct experience with them – but because they were risks many read about in history books and thought were a thing of the past.
“These are legacy risks that are perhaps better understood from a historical perspective, but which very few of the current generation of business leaders and policymakers have any real-world experience with,” says Carolina Klint.
While the COVID-19 pandemic may have opened many eyes to the potential impact of unforeseen risks, the pandemic’s continued aftereffects – coupled with rising geopolitical tensions – have resulted in an even more dynamic and unpredictable risk landscape.
“The reason we're facing this now is a result of the cumulative effects of political, economic, climate-related, and social factors that we've experienced over the last two years,” Klint explains.
“On top of all that, we have Russia's invasion of Ukraine, which is taking place in a geographic region that is extremely important for agriculture, energy, and access to raw materials and minerals.”
The war in Ukraine has also led to other risks like increased migration and the risk of cyber-attacks.
While short-term geopolitical and economic risks feature prominently in the 2023 Global Risks Report, concerns over the long-term risks associated with climate change remain.
Moreover, many of these risks affect one another in different ways, says Klint, resulting in challenging ripple effects.
“We’ve seen a lot of natural disasters in the last year, which has affected infrastructure and caused increases in the price of food and other necessities, which in turn has resulted in further political stress and polarisation in society,” she explains.
“We will see continued volatility. We have to remember that these risks are surprisingly interconnected, with one affecting and worsening the next, meaning we are likely to face several uncertain and turbulent years ahead.”
The 2023 report reveals that Swedish business leaders are primarily concerned with financial risks driven by geopolitical crises, such as inflation, the energy crisis, rising living costs, and increasing household debt.
Swedish businesses also list concerns over possible terror attacks and the wider economic consequences of increased geopolitical tensions.
One of the biggest and hardest lessons companies have learned over the last few years is how fragile and uncertain global supply chains have become. From the 2019 US-China trade disputesr, through the pandemic, and now with Russia’s invasion of Ukraine and the sanctions that followed, supply chains have suffered one blow after another.
“In the past, we may have been rewarding efficiency over resilience and perhaps rewarded growth over sustainability a bit too much,” says Klint.
This resulted in what she calls a “resilience debt” that many companies are now being forced to repay for not having adequately prepared for the risks they now face. And companies that have allowed for a little more flexibility and more spare capacity in their operations have had the resources to adapt and find alternative models faster.
“What we’re seeing now is companies tightening control over their supply chains, identifying alternative suppliers, increasing inventories, and in some cases moving production closer to home or even acquiring suppliers to increase vertical integration,” says Klint.
“We’re seeing a greater interest in allowing access capacity and a clear shift from a ‘just-in-time’ approach to a ‘just-in-case’ strategy.”
While today’s risks represent a tangled web of uncertainty for companies, the interconnected nature of prevailing risks does offer a silver lining.
“Just as the risks themselves are connected, so are potential solutions. Measures meant to address one risk can in turn have mitigating effects on other, related risks,” she explains.
Klint recommends that Swedish companies make an effort to increase diversity around the table when conducting risk exercises to improve their ability to assess and address risks.
“Diversity is a great tool to ensure that different perspectives are included. It also helps to paint a more complete picture of the changing risk landscape and create awareness about what may be on the horizon,” she explains.
But perhaps most important of all for companies to take, she adds, is connecting risk to strategy.
“See if you can adapt your strategies to the direction change is taking you. That way you can take advantage of the opportunities that come with change,” says Klint.
“I think this is the key to success going forward.”
If you would like to read the full report you can do here.