Concern about a macroeconomic downturn has quickly become the top emerging risk facing organisations.
This is the headline finding from Gartner’s latest global Emerging Risks Report, conducted in the second quarter of 2022.
“The top five risks reported by respondents were notable both for their interconnectedness and origination outside of the organisation,” says Chris Matlock, vice-president with the Gartner Legal, Risk & Compliance practice.
“While interconnected, many of the top risks send conflicting signals on the state of the economy, which makes the role of emerging risk management (ERM) leaders especially crucial in filtering the most relevant, organisation-specific information up to the C-suite and board.”
Gartner identified an economic downturn as one of the top five emerging risks in the first quarter and concern about this risk has accelerated since then.
Notably, all five top emerging risks in the second quarter are external to the organisation and can have significantly different impacts based on geography and industry.
After macroeconomic downturn they are escalating conflict in Europe, state-sponsored cyberattacks, energy price inflation and key material shortages.
Gartner says ERM leaders should continually reassess assumptions about their macroeconomic outlook and ensure that “top-down” risk assessments originating from senior executives are balanced by “bottom-up” risk evaluations that rely more on the experiences of business unit leaders from across the organisation.
Senior executives should be concerned about signal loss or the inability to get critical, on the ground intelligence in a timely fashion to respond to these fast-moving risks.
According to Matlock, leading organisations do not just avoid risk, but seek to embrace it as an opportunity to expand market share and move past competitors.
Balancing near-term and longer-term risks
Energy price inflation ranked as a top five emerging risk concerning respondents, yet levels of executive attention may still not be adequate to effectively mitigate the risk.
An escalation in impacts from Russia’s invasion of Ukraine could drive energy prices higher, as well as ongoing vulnerabilities from extreme weather events, including the upcoming North American hurricane season. As a result, multinational organisations could see disparate geographical impacts in energy price rises, especially in Europe, which is more vulnerable to supply shocks.
Matlock said executives should be prepared for continued issues because of ongoing sanctions on Russia and because of an imbalance in specific product availability at refineries around the world. This is leading to higher prices throughout the energy supply chain, adding to the existing inflationary pressures.
“Uncertain environments require executive teams and their ERM partners to ensure they have processes in place to zero in on the most pressing risks for their organisations and ensure mitigation plans are in place for worst-case outcomes,” says Matlock.
“ERM leaders can help bring clarity to executive decision making through qualitative assessments that are tailored to the organisation’s risk appetite, which is especially useful at a time when quantitative measures of risk are elevated across the board.”