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Navigating the Unknown: 5 Emerging Risks Every Leader Must Prepare For


Risk Perspectives are evolving. Global and emerging risks are complex and can negatively impact company earnings and market positioning. Risk agility offers the benefits of changing and adapting your risk management screening mechanisms to respond quickly to changing markets, customer preferences, or market dynamics. Below are some unpredictable risks. From, Space Junk to Cloud Concentration to AI dependence. It details how leaders can build agile response strategies.


The Space Pollution Risk


Alejando Ortero was on vacation while his son remained in their Naples, Florida home. On March 8th, 2024, at 2:34 pm, his teenage son was lounging at home possibly plotting a weekend of gaming and parties when the unexpected happened. A loud sound blasted through the residence. Upon investigation, Alejandro’s son discovered that a metallic object had ripped through the roof on a path that plunged 2 floors down through the home. Luckily, the youth escaped serious injury positioned away from the point of impact. The object, he narrowly escaped was a 2-pound chunk of a jettisoned pallet of used batteries. Waste released from the International Space Station since 2021 eventually returned to Earth.  It defied science and didn’t disintegrate upon collision with the 7000-degree Fahrenheit wall of heat upon re-entry to Earth.


In 2021, the World Economic Forum (WEF) warned about the collision risk of the space debris populating space. Dead satellites and discarded rocket stages are the negative side of the space economy which has grown into a $400 billion industry. Space travel continues to offer scientific breakthroughs, entertainment, tourism, and satellite communications and is on the upswing as costs lower through technological innovation. The forum indicated that by 2035, the space economy will reach an impressive $1.8 trillion. It should be noted that space’s impact extends beyond hardware and software providers but is likely to influence industries like education, tourism, retail, consumer goods, lifestyle, food and beverages, supply chains, transport, disaster mitigation, and mining. For example, the metallic asteroid Psyche (about 200 km wide) contains about 50% metal, an amount, equivalent to millions of years of Earth’s annual global iron and nickel production.



WEF gave the topic a conceptual view focusing on space sustainability and the potential compromise to communication systems. Not surprisingly the guidance on the likelihood of it physically affecting operations on Earth is not easily grasped. Given, the event in Naples, the issue must now be humanized and regarded in the context of health and safety systems (tracking and projectile management) that are constructed on Earth as the risk is no longer theoretical. For now, we will have to wait for inventions to catch up with solving another man-made problem. Alejandro Ortero’s words resonated with a subtle lesson on dealing with new uncertainties

“I was shaken! I was in disbelief! I learned there is something else to worry about. Not only hurricanes….”

Familiarity and what we think we know!

External events such as contracted globalization, political fragmentation, technological advances, and geopolitical conflict create volatility but are also convincing signals for companies to monitor shocks and adverse trends.  Beyond financials, corporate reputation has a currency therefore businesses must make smart commercial choices that protect stakeholder equity. Wells Fargo's 2016 fake bank account scandal and its June 2024 debacle of employees faking and simulating keyboard activity demonstrate that rooting out corporate risk is not easy.


While corporate risks fester, leaders get attached to ideals taking comfort in what they believe they know. They fail to consider evidence that infers an alternative reality. It’s a form of confirmation bias where management hangs on to information that supports their preconceived notions. History and experience are naively used as strategic playbooks. March and McLennan acknowledge that the familiar path provides clarity and direction. They caution that it should not come at the cost of discerning ambiguity and adapting to change. False confidence hinders growth and disrupts the ideal trajectory.


The Information Accuracy Risk

“Misinformation, disinformation, delusions, and deceit can kill!”

Martin Baron gave these intense warnings, as he presented at the 2020 Harvard University Graduation. His admonishments highlighted that false information could damage society and extend beyond challenging democracy and eroding trust in institutions. The pandemic, a top global issue in 2020, was the backdrop behind his speech. At that time, social media played a big role in promulgating misinformation about health matters. Facts and truth inspire personal, political, and social choices. He laid bare the ills of being passive about the influence of erroneous information. In his view making the wrong decision could mean the difference between life and death.


Since then, the risk has heightened to include digital disinformation spreading into the corporate sector. Misinformation is false information with no ill intent. Disinformation is the weaponization of false narratives. It is fabricated and deliberately shared written, audio, and visual content to create instability. From a business context, this becomes critical as false information can harm brands, disrupt operations, and evolve into legal consequences. False news holds more sway over public action than the truth. In 2019, MIT performed a longitudinal study on a social media platform from 2006 to 2017. It found that false news reports were 70% more likely to be retweeted thereby amplifying the reach and virility of false information.


An estimated $78 billion a year is lost due to narrative attacks whilst US publicly traded companies lose approximately $39 billion annually due to disinformation market losses (Nasdaq, 2023). In May 2023, a deepfake of an explosion in the Pentagon spread via verified accounts on X. Minutes later the stock market dipped by half a trillion dollars. Disinformation is not only created by external actors. It can come from companies which can lead to legal and regulatory consequences. Companies that claim products and services are more climate-friendly than they are indulging in greenwashing which is a form of misleading investors. US states like California and the European Union have instituted legislation against greenwashing to protect consumers.


Disinformation should be treated as a crisis. Companies should institute fact-checking protocols and train employees to spot misinformation. Preparation should include crisis communication plans.


Cloud Concentration Risk


“The risk associated with cloud concentration is fast losing its ‘emerging’ status as it is becoming a widely recognized risk for most enterprises,”

said Ran Xu, director, of research in the Gartner Legal Risk & Compliance Practice in 2023. Cloud concentration risk refers to an organization's over-reliance on one cloud service provider. 


This overreliance places many organizations in a vulnerable position where they can face severe disruption in the event of the failure of a single provider. There is a growing risk that cloud provider downtime can lead to consequences that are detrimental to businesses and end users. It can also evolve to being a systemic risk where national infrastructure and wider economies are impacted which can have a ripple effect. In the UK, concerns over the dominance of providers such as Google, AWS, and Microsoft, have prompted a regulatory probe into whether their market shares are harming customers and impacting innovation. In the Bank of England’s semi-annual Financial Stability Report, the central bank expressed its concern about risks associated with concentrated cloud computing data centers, and how that could affect financial stability in the UK. It listed the concentration of data centers; the concentration of financial services firms that operate data centers; and the concentration of cloud service providers themselves as significant risk drivers to be addressed. This risk must be treated as part of a broader supply chain strategy. Some companies are opting to diversify to multi-cloud and hybrid cloud practices. 


The Mental Health &AI Dependence Risk?


There is no clear consensus on this particular risk, but it is worth monitoring as more companies adopt generative Artificial Intelligence (AI) into business operations. It is a set of computer programs designed to think and mimic human behavior such as learning, reasoning, and self-correction (Gillath et al, 2021). AI already is in people’s daily lives in various forms, such as voice assistants (Apple Siri), social chatbots, and video. There are several opportunities that AI offers in terms of speed, efficiency, predictive analysis, and reduced labor costs, but there are disadvantages that we must be prepared for. In 2023, Resume Builder surveyed 750 business leaders who used AI. 37% said the technology replaced workers in 2023. 44% reported that there will be significant layoffs in 2024.  In June 2023, Challenger, Gray & Christmas reported that AI contributed to nearly 4,000 job losses in the prior month. Goldman Sach predicted that AI could replace 300 million jobs between the US and Europe. With these developments, are there likely to be creeping issues with workers dealing with fear and anxiety? Is there likely to be a psychological detriment to overreliance and technology?


There are many interventions for which AI can have a positive influence on mental health. Over 970 million people live with a mental disorder worldwide (Lancet Psych, 2022). AI-enabled tools can prevent more severe mental illness from developing by identifying higher-risk populations that lead to quicker intervention. AI detects mental stress (Mentis et al, 2023) and processes natural language from electronic health records to detect early cognitive impairment (Penfold RB, 2022) or child maltreatment (Negriff S,2023).


AI can be a problem solver but it can also be the root cause of mental health issues. Employees may feel frustrated, worthless, and resistant to change. Others may fear becoming obsolete. Leaders may also be grappling with similar psychological fears (Marter, 2024). In 2023, the Washington Post ran an article on people’s jobs being replaced by ChatGPT. Workers were forced to seek vocational jobs where AI hasn’t touched…for now. One such person was Mr Eric Fein whose copywriting skills were replaced by ChatGPT. He decided to retool and become an HVAC technician. Another researcher was laid off and she dejectedly decided to leave the white-collared world to become a dog walker. Mr Fein summed it up clearly when he said,

It’s an uphill battle against a creature that has already replaced me and continues to improve and adapt faster than any human could ever keep up.”

He may have a point but there is still a role for human oversight rather than movement to full technology dependence.


Neglecting one over the other can also create secondary risks beyond job insecurity. The Centre for Countering Digital Hate found in their 2023 study that AI tools can generate harmful content about eating disorders 41% of the time. Amazon’s AI tool was accused of discriminating against women. There are also liability risks that can occur when the customer experience is compromised. For instance, in February 2024, Air Canada was ordered to pay compensation to a grieving grandchild who claimed they were misled into purchasing full-price flight tickets by an ill-informed chatbot.  Air Canada distanced itself by stating the chatbot (their virtual messenger) was a separate legal entity, so they were not responsible.


As the world of work transforms, leaders must structure harmonization between man and AI in a way that promotes transparency, accuracy, and accountability. Prioritization of employee health and well-being will remain a useful part of their risk management strategy.

 

The Bio-Supply Chain Risk


If you believe that nature doesn’t matter to your business, think again. Whilst treated as inexhaustible (BSR, 2022) biodiversity loss has massive business implications. Boston Consulting Group coins it as a business crisis in the making. Businesses significantly impact biodiversity through their operations, products, and services. 40 % of the world’s land is classed as degraded and up to 66 percent of the marine environment is significantly altered (OECD,2020).  The World Benchmarking Alliance states that only 5% of businesses polled consider it as a risk.


The value of biodiversity to businesses is USD 125-140 trillion (US dollars) per year, i.e. more than one and a half times the size of global GDP (WEF,2022). The costs of inaction on biodiversity loss are high. Between 1997 and 2011, the world lost an estimated USD 4-20 trillion per year in ecosystem services owing to land-cover change and USD 6-11 trillion per year from land degradation.

 

Humans are driving a sixth mass extinction (Ceballos, 2023; Díaz et al., 2019) where a high percentage of distinct species—bacteria, fungi, plants, mammals, birds, reptiles, amphibians, fish, invertebrates have died. Businesses are the main drivers of species depletion, forcing land-use changes (e.g., agricultural expansion), direct exploitation of resources (e.g., fishing), pollution, climate change, and the introduction of invasive alien species (Díaz et al., 2019). As the structure and function of the ecosystem (Ceballos, 2023) adapt and evolve, the capabilities of organisms to provide ecosystem services (crop pollination, water purification, flood protection, and carbon sequestration) dwindle (Cardinale et al., 2012; Winn & Pogutz, 2013).


According to the Institution of Sustainable Studies, biodiversity loss significantly impacts global supply chains and business operations, affecting resilience, cost efficiency, and sustainability. Firms therefore need to measure their impacts on biodiversity to not only inform conservation efforts but to make their supply chain more robust (Jones, 2014). The operations of four major value chains—food, energy, infrastructure, and fashion—currently drive more than 90% of man-made pressure on biodiversity (BCG,2021).

 

Banks, insurers, and investors will feel the brunt of ecological risks when resource dependency, scarcity, and quality start to impact value creation through increased raw material costs. There are higher insurance premiums and payouts from biodiversity loss (e.g. coral reefs in Cancun, Mexico), There is also liability risk. The 2010 Deepwater Oil Spill Case, which cost USD 65 billion to British Petroleum, and the Exxon Valdez Case on oil spills’ devastation of natural resources and marine biodiversity (Bousso, 2018). It also poses market risks as consumer preferences encourage boycotts of products linked to unsustainable practices (tilapia, tuna, palm oil). Business Leaders should focus on their biodiversity risks and be more transparent with how they source resources to perform their operations. The Global Biodiversity Framework (GBF) sets ambitious targets to conserve nature and ensure its sustainable use. Businesses are essential to its implementation. Mapping biodiversity risks throughout the value chain and reducing the impact, while setting science-based targets is important.  Building internal accountability through governance structures also brings transparency and awareness to the sustainability of operations. Unilever, Kering, and Ben & Jerry's are companies that have incorporated protecting biodiversity into their strategy. They sustainably source materials and use third-party verification to validate unethical practices along the supply chain.


The emerging risks mentioned are meant to encourage the regular screening of developments through a comprehensive risk assessment that prioritizes emerging risks. It should be an agile approach to risk management that adapts to changing circumstances while supporting organizational awareness. This must be supported by a strong foundation of Vigilant Leadership.


The End



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Andre Samuel
Andre Samuel
27. Juni

This was a very insightful article, great work!

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