Global Risks Report 2021: 3 Priorities for Risk Professionals
The job of the risk manager just seems to get more and more complex and challenging — and more critical to an organization’s success. The rapid development of a COVID-19 vaccine has brought optimism that we’ll return to some sense of normalcy sooner rather than later. But the pandemic has put risk management in a spotlight like never before — one that is not likely to fade any time soon.
As businesses focus on recovery, rethinking short- and long-term business strategies, and building resilience against future adverse effects, risk management is at the center of it all. But to thrive and edge out their competitors in a volatile environment, organizations need to look at risk in a new light.
Increasingly Complex Risks for Businesses
Each year, The Global Risks Report, published by the World Economic Forum in partnership with Marsh McLennan, explores the top risks that business leaders are most concerned about. This year’s report — the 16th edition — draws on a survey of nearly 700 experts and decision-makers globally. And its insights for executives and risk professionals are as valuable as ever.
Not surprisingly, infectious diseases, cyber risks, and climate change were the top three global risks identified in the 2021 survey. The report also points to the far-reaching consequences of the pandemic, including greater erosion of social cohesion as a result of a livelihood crisis and rising digital and social inequality. Although past editions of the report — including its very first, published in 2006 — have at times discussed potential pandemic risks for organizations, those risks were often overlooked or underestimated.
Businesses are currently facing disruption from all sides and are expected to face significant uncertainty even after the pandemic’s effects fade. Senior leaders are realizing that they must closely watch three critical drivers of risk:
- Political: Varying trajectories and impacts of stimulus packages around the world and the ability to quickly roll out the vaccine will heavily influence the speed of our economic recovery. Meanwhile, a move away from multilateral cooperation — as evidenced by Brexit and the continuing rivalry between the US and China — will contribute to more trade disputes, tariffs, and other adverse outcomes that can harm supply chains and bottom lines.
- Societal: Consumers, employees, and investors expect businesses to reflect their values, and are closely scrutinizing their practices, particularly in relation to climate change and other environmental, social, and governance (ESG) issues.
- Technological: Rapid digitalization and remote working have exponentially increased cyber exposures, resulting in greater complexity and less security.
These drivers are powerful enough on their own, but they’re also often layered on top of each other. The last year has demonstrated how infectious diseases can bring more than just health threats — they can endanger employment and livelihood, stall economies, disrupt supply chains, and fracture societies. Extreme weather events, cybersecurity threats, and more can similarly generate or exacerbate other risks, with many unforeseen consequences for businesses and governments.
Building Your Risk Muscle
This greater fragility and complexity means that organizations need to take a fresh approach to managing risk. You need to look at risk through a different lens than in the past — and potentially build “muscles” that you haven’t focused on before.
To help their organizations thrive in this new era, risk professionals can focus their energy on three areas:
- Rethinking risk management strategies. Previously underutilized tools, such as scenario-based and quantitative analyses, may help you anticipate complex challenges and find novel solutions for them.
- Collaboration, diversity, and inclusion. When looking for solutions to complex problems, why not cast a wider net? Risk management teams can enable discussions about risk from all corners of the organization. Greater cultural diversity and inclusion, meanwhile, can bring in new talent with fresh perspectives that may prove invaluable.
- Reevaluating enterprise risk strategies. Organizations that look at risk more holistically and strategically can reap significant benefits. An enterprise risk management framework that enables organizations to systematically identify and assess risks, evaluate and manage their root causes, and measure and monitor them can make smarter decisions and outperform their peers.
Beyond taking these steps within their organizations, risk professionals should lean on their risk advisors. In a time of complex macro challenges for businesses — and a difficult insurance market to boot — the right advice can be invaluable. Working with an advisor that can help you measure the impact of various risks, build effective insurance programs, and develop robust and well-tested response plans can enhance your resilience to threats that could arise in the next year, the next decade, and beyond.
For more insights, read The Global Risks Report 2021, published by the World Economic Forum with support from Marsh McLennan, or contact your Marsh representative.