The global risk landscape has changed drastically from last year where the top risks were based on financial and political concerns.
According to the World Economic Forum, in partnership with Marsh and McLennan, in the “Global Risk Report 2020”, businesses globally identified climate action failure and extreme weather as the most pressing risks facing businesses this decade. This year, environmental threats are on top of the global concerns in the report for the first time in the history of the survey.
The report also forecasts a year of increased domestic and international divisions, with cyber-attacks among the top 10 risks globally.
Businesses in MENA, however, are facing a different set of risks. Among the top risks facing MENA are “energy price shock”, “fiscal crises”, and “unemployment or underemployment”.
Looking at the risk landscape in the Gulf countries, the outlook shifts again. For the UAE, technology risks feature heavily with businesses identifying “cyber attacks”, “energy price shock”, “asset bubble”, “data fraud or theft”, and “misuse of technology” as their top concerns for doing business.
The risks identified by the UAE and GCC countries are closely aligned... and becoming increasingly similar to the risk outlook of large economies in Europe and North America.
With many GCC countries on a journey of economy diversification that is attracting investors to the region, the risk parameters for businesses need adapting. Growth in consumer-based industries such as tourism, hospitality, and F&B is expanding on the opportunities for market maturity.
To keep the momentum of growth in the region, governments and businesses are working to create favorable conditions for investors. A focus on corporate governance enhancement and building cyber resilience is on top of the priorities of boardroom and regulator discussions in the GCC.
Feel the global heat
Businesses in the region should anticipate the operational and reputational risks that may come ahead as social unrest and geopolitical tensions continue globally. It is important to recognize the likelihood of structural changes in the trading environment and technology investment and move accordingly.
Moreover, in the evolving cyber threat landscape, businesses need to act immediately on building cyber resilience. Given new challenges in the risk landscape, firms will need to find the right approach at the board level to discuss complex uncertainties and strategic emerging threats and build that into decision-making.
An eye on climate
With environmental risks featuring so prevalently in the report globally, it is interesting to note that they are less present at a MENA and UAE level. One reason for this could be that the top concerns in the region and locally are being felt more acutely at this moment in time. That being said, business in the region are not immune to environmental risks.
With a global trading environment, an environmental event in another region or country can have an impact on the supply chain of businesses in the region. Organisations therefore need to strengthen their supply chain to ensure their businesses and endusers are not impeded by interruptions in delivery of goods and services.
In our recently released MENA Risk Management and Insurance Perception Survey, the results have shown that respondents were keenly aware of the importance of developing a more strategic approach to risk management in order to benefit their organisations — the survey showed that respondents ranked “quantifying specific risk”, “exploring emerging issues”, and “optimising insurance programmes” as their top three motivations for improving risk management data and analytics within their organisations.
This willingness to move in a more strategic direction is a significant indicator of positive change within the region.
Need better alignment
The report has shown that there is a disconnect between top management and risk management teams within organisations, with 47 per cent of senior leadership and 44 per cent of insurance teams believing their organisations’ decision making is informed by a formalized risk management framework.
This is at odds with the risk teams, of which only 9 per cent shared the same view. This shows that there is an inconsistency that highlights the need for better communication between risk management teams and their key stakeholders.
If left unaddressed, this lack of internal communication within an organisation will negatively impact its strategic growth and put the business in an unforeseen risk.
With a constant, evolving risk landscape both globally and locally, organisations need to adopt a pro-active approach to how they will manage, mitigate and transfer these threats. Risk management does not start with insurance, but it starts by analyzing the risk landscape and planning to become more strategically resilient.
– Ayman El Hout is CEO at Marsh UAE.