Please see below selected recent intelligence about risk. This is a synthesis of major recent developments at competitors, business schools, thinktanks, media, commentators, and other key influencers in our external environment.
- Eurasia Group founder Ian Bremmer talked with IMF chief Christine Lagarde about managing risk in a complex world.
- Eurasia Group noted that euroscepticism is increasingly evident in national politics: China has made clear its intention to further promote its semiconductor industry, focusing on overseas acquisitions this year; Germany's government has agreed to prioritise investment in digitisation; Turkey's new cabinet will prioritise near-term growth, weakening the medium- to long-term outlook; Canada's climate change plan, if approved, would put energy-intensive industry under significant pressure; the Korea Development Bank and the Export-Import Bank of Korea, are feeling the pinch from weak global demand.
- Oxford Economics - Global Risk Survey 2Q 2016
- Growth in Europe is on track, but geopolitical risks have risen - Standard & Poor's
- Deloitte warned that strategic risks can do serious damage to an organisation, very quickly. These risks can compromise supply chains, facilities, technology, talent, capital, reputation, and basic drivers of value. Yet they fall outside most enterprise risk management (ERM) programs and are difficult to quantify, monitor, and manage. To address these risks, leaders need new perspectives and approaches. They need tools for scanning the environment, tracking developments, and visualising risk data. And they need to prepare effective responses, because responsibility for strategic risks resides at the C-suite and board levels.
- PwC's most recent Global CEO Survey, asking what keeps CEO's awake at night, found that policy threats weigh heavily: 42% express significant worry about over-regulation. However, the top business concern among respondents is the availability of skilled labour; here, technology CEOs are the most anxious.
- A further rapid appreciation of the yen and a fresh fall for oil prices provided a markedly negative backdrop for global risk appetite, putting pressure on US and European equities, emerging market currencies and “peripheral” eurozone sovereign debt.
- Deloitte warned that strategic risks can do serious damage to an organisation, very quickly. These risks can compromise supply chains, facilities, technology, talent, capital, reputation, and basic drivers of value. Yet they fall outside most enterprise risk management programmes and are difficult to quantify, monitor, and manage. To address these risks, leaders need new perspectives and approaches. They need tools for scanning the environment, tracking developments, and visualising risk data, and they need to prepare effective responses, because responsibility for strategic risks resides at the C-suite and board levels.
- The McKinsey Global Institute, in a study of post-crisis debt trends, noted that gross debt has increased about $60 trillion – or 75% of global GDP – since 2008. China’s debt, for example, has increased fourfold since 2007, and its debt-to-GDP ratio is some 282% – higher than in many other major economies, including the United States. .
- Seven million people die prematurely every year from pollution exposure, according to the World Health Organisation, making air pollution the world’s single biggest environmental health risk. And yet, fossil fuel subsidies, which cost nations US$2 trillion per year, continue to encourage vehicle use. The problem could become even more acute when, by 2040, there will be an additional 2-3 billion middle class consumers on the planet. INSEAD noted that recent government efforts to improve the state of the planet’s environment have been powerful, but unfortunately inadequate. The 17 Sustainability Development Goals adopted by the UN to keep global warming below two degrees above pre-industrial levels, still have to be ratified by 55 states, meaning that achieving a temperature limit of 1.5 degrees is “extremely unlikely”.
- According to Eurasia Group, with all the attention to the conflicts in the Middle East, the political crises in Europe, and the unfolding circus of the US Presidential elections, it’s easy to forget that by far the biggest structural change in the global system is the rise of China - nothing else comes close. A more influential China that doesn’t share American values or priorities, either with strong signs of succeeding or failing, is what Eurasia sees as the world’s top risk for 2021.
- Eurasia Group's latest Political Risk Monitor for March 2016 summarised key trends in political risk and stability globally. Country-level political stability diverged significantly among emerging equity markets most exposed to spillover risks from China. South Africa, Brazil, Thailand, and Indonesia are less stable than their highly exposed counterparts South Korea, Malaysia, Mexico, and India. Political stability is less volatile this month, but the expected impact on the global economy continues to decline, and short-term political trajectory scores in key markets - including China and Japan - have declined. Among the largest oil exporters exposed to low prices, year-on-year political stability has improved markedly in Iran while declining slightly in Saudi Arabia and Kuwait. Political stability in Russia has remained constant.
- In PwC's own 19th Annual Global CEO study, 66% of CEOs saw more threats to their business than opportunities. To remain competitive, companies must pursue two parallel strategies: 1. Building agile and flexible risk management frameworks that can anticipate and prepare for the shifts that bring long-term success and 2. Building the resiliency that will enable those frameworks to mitigate risk events and keep the business moving toward its goals. This connection between risk resiliency1 and risk agility2 is at the heart of this year’s Risk in Review: Going the distance study. As our study shows, today’s most forward-looking companies have both the solid infrastructure and processes to help them weather any storm, as well as the flexibility to move quickly to meet new opportunities.
- The Swiss firm RepRisk recently published its “most controversial companies” index for 2015. Here were some of the names that featured most prominently, and not in a good way, last year: Uber, Volkswagen, Sony, HSBC, Fifa. They were deemed to have mishandled environmental, social or governance issues. This was one league table you did not want to appear in, claimed the Financial Times, asking whether chief risk officers (CROs) been asleep on the job in these cases? Why did boards not know what was about to hit them? Management of risk is a question of culture and behaviour. It is hard for any CRO to influence risk management in a business if it is not seen to be taken seriously at the top.
- According to Eurasia's Political Risk Monitor: February 2016, there is wide divergence in political capacity across emerging market oil exporters to respond to low oil prices. Governments in Mexico, Colombia, and to a lesser extent Russia have more political space and ability to take corrective fiscal measures than their counterparts in Venezuela, Nigeria and Ecuador. Though political stability is less volatile this month, the expected impact on the global economy is worsening. Political trajectories have deteriorated across many emerging and frontier markets including India, Mexico, and Nigeria. Among the emerging and frontier markets facing elections this year, political stability is likely to remain relatively stable. Ghana, Peru and the Philippines have experienced a slight improvement in stability over the past year, while Vietnam’s security environment has driven stability down slightly.
- The Global Brief is the flagship product of Eurasia Group’s strategic alliance with PwC. It is a senior briefing service that monitors political events in PwC’s top 21 territories and highlights risks & opportunities in these markets- see highlights from February’s Global Brief.
- Eurasia Group's latest Political Risk Monitor summarised key trends in political risk and stability from 2015 with a look forward into 2016. As in 2015, political stability will probably be more volatile in 2016 than in recent years, and it expects politics will have a more negative impact on the global economy over the next six months. Weighted by GDP, global political stability is most concentrated in the Asia Pacific region and appears set to remain so in 2016. Iran and Pakistan saw the largest gains in political stability last year, while Ukraine and Turkey endured the biggest declines.
- Oxford Economics (OE) presented its top ten risks for 2016. A resilient growth performance among advanced economies should offset subdued outturns in emerging markets. According to OE, the balance between advanced economy and emerging market growth is a dangerous cocktail, however, as it places a premium on central banks' powers of judgement and it requires the emerging world, and China in particular, to resist forces that could fuel a more marked slowdown.
- How should we think about systemic risk in Europe today, wondered the FT? For the EU, the ability to muddle through may be reaching its limits when, as now, several crises intersect at once. The FT sees the problem most clearly in Greece - a country battling both economic meltdown and a refugee crisis - with not much help from the rest of the EU. However, while Greece may be the starkest example, it is not the only country facing overlapping crises, nor even the most important one. That would be Italy. While Rome’s problems are different from those of Greece, its long-term sustainability in the eurozone is just as uncertain, warned the FT, unless one believes its economic performance will miraculously improve, though there is no reason why it should.
- Cyber breaches and insider threats, which include malicious insiders stealing, manipulating or destroying data, are the fastest-growing risks according to executives, finds EY’s '2016 Global Forensic Data Analytics Survey, Shifting into high gear: mitigating risks and demonstrating returns'. The survey was conducted with 665 executives globally across nine industry sectors, including financial services, life sciences, manufacturing and power and utilities. When looking at the current use of tools to investigate incidents or manage risk, the survey found that internal fraud risk ranks highest for the application of FDA at 77% and cyber breach or insider threat risk ranks second at 70%.
- For 2016, Eurasia Group believes that the unwinding of the US-led geopolitical order will accelerate. There is growing political division in a year with a presidential election in the US and a foundational political crisis for Europe. Russia, in decline, is led by an increasingly combative and resurgent Vladimir Putin. China is becoming far more powerful, but with a foreign policy that reflects primarily economic (though still strategic) national interests. The Middle East is the most vulnerable to a geopolitical leadership vacuum and is heading toward conflagration, believes Eurasia. There are six failed states across the broader region and more refugees than ever recorded. Oil economies are under strain. All of this will get worse in 2016. Europe will feel much of the pain-in economic costs, security vulnerability, and political blowback. The US, at the twilight of the Obama administration, will mostly stick to its knitting, since the Western hemisphere remains insulated from the lion’s share of geopolitical instability. In Asia, despite having many of the world’s strongest national leaders, helping manage these problems is not a priority. This all means a dramatically more fragmented world in 2016.
- Indeed, Eurasia Group's latest Political Risk Monitor summarised key trends in political risk and stability from 2015 with a look forward into 2016. As in 2015, political stability will probably be more volatile in 2016 than in recent years, and we expect politics will have a more negative impact on the global economy over the next six months. Weighted by GDP, global political stability is most concentrated in the Asia Pacific region and appears set to remain so in 2016. Iran and Pakistan saw the largest gains in political stability last year, while Ukraine and Turkey endured the biggest declines.
- Deloitte: Risk transformation and tax: Securing the benefits of enhanced tax-risk management
- Deloitte: Implementing risk transformation in financial institutions Governance and culture
- World Economic Forum Ranks Water Crises as Top Long-term Risk - Circle of Blue