Emerging Risk
An emerging risk is a new or unforeseen threat that has not yet been examined seriously. In business terms, these risks often aren’t entirely within our grasp, reality, or within our risk awareness.
We need to venture more deeply into our understanding of what constitutes an emerging risk as they can be varied and highly different. The Institute of Risk Management, in a special interest report ‘An introduction to emerging risks and how to identify them’ helps us define potential emerging risks by looking at seven elements:
- Ambiguous: Risks that are difficult to define.
- Chaotic: Risks that are constantly changing.
- Complex: Risks that affect many factors at the same time.
- Time-horizon can change: Risks may appear a long way off, but the time-horizon could change rapidly.
- Uncertain: Risks where knowledge is lacking.
- Uncontrollable: Risks where the organization isn’t in control because it is controlled by risk factors external to the organization, so the onus moves to how to adapt and respond rather than mitigate.
- Volatile: Risks where significant changes are occurring within a short time frame.
An individual risk can comprise multiple of the above elements. Emerging risks can arise very quickly or more slowly. They may be visible on the horizon with a pre-defined shape, or they may morph and change soon. Emerging risks can result in significant financial losses if not well understood and planned for.
Identifying emerging risks allows any business, large or small, to prepare for unforeseen and uncomfortable situations and avoid those financial discomforts. By identifying emerging risks and uncovering and exploring how these affect businesses at large, you can assess, manage, monitor, and direct their impact.
Emerging risks are also a source of potential opportunities for those who plan effectively.
The Emerging Risks of the Future
Gartner has identified ten core emerging risks that will affect all organizations. It’s worth noting that this list is far from exhaustive. We believe that some of these risks are more extensive than the original explanations identified where this is the case. We also believe that the transition economy brings about future risks.
- Cybersecurity control failures
- Cyber risks as a set of emerging risks could indeed be dire.
- ESG regulatory requirements
- Environmental, Social, and Governance (ESG) reporting requirements continue to increase due to new and more significant regulations to protect people and the planet.
- Remote talent management
- Remote talent management requires a new and structured approach, especially when the workforce is likely to be increasingly hybrid. Resource allocation issues are notable.
- Organizational culture degradation
- The roots of organizational culture haven’t been sustained with the distance. It is tough to execute without the in-person contact and incidental interactions of everyday life.
- Supply chain disruption
- Whether it’s been an inability to buy everything on your weekly grocery list or navigating the challenge of filling up your vehicle with petrol a few months ago, every person on the street should be very aware of supply chain disruption.
- Talent post-Covid-19
- Understanding the new challenges and threats arising within the talent management arena is where investment in tangible action plans could create immediate returns for growing enterprises.
- Diversity, Equity, and Inclusion (DEI) Responsiveness
- DEI is not an easy step to follow for many organizations as it requires the redesign of HR policies and investment within and outside the company’s walls.
- Corporate tax changes
- Many businesses have to look at their early recovery plans and rethink them in line with new corporate tax legislation becoming effective within the recent 24 months to support economic recovery. A 6 percent tax increase for profit over 250,000 in the UK is not insignificant.
- Post-Covid China
- China was already pushing up to the captaincy of the global ship well before Covid-19.
- Politicization of decision making
Climate change as an active emerging risk is a complex field to address. However, within it, we can see three core areas of potential challenge:
- Transition risk: from reversing climate change, environmental damage, and emission risks to safety and talent risks.
- Reputational risk: beyond error, oversight, or accidents, the failure to become more sustainable may carry immense reputational losses.
- Physical risk: natural disasters caused by climate change as well as the shortage of needed natural resources.
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