Snapshot
- Aon’s 2021 Global Risk Management Survey has revealed that long-tail risks have become a focal point of the risk landscape.
- Our research shows that a failure to prepare can be catastrophic to an organisation’s reputation and survival and the pandemic is a reminder that it is not enough to focus on a specific event or exposure, but of the impact events can carry in a global marketplace.
Our survey has also highlighted the growing interconnectivity of risks, and their increasing complexity.
In identifying current and future risks we also examine the risks, underrated by the survey participants, that we see having a significant impact on Australian businesses.
Underrated risks in Australia and globally
Environmental, Social and Governance (ESG): In Aon’s 2021 survey, ESG ranks only in 31st place overall globally. ESG strategies sit at the heart of most business plans today, and with these strategies comes new risk. Companies are increasingly required by regulators to adopt transparent and effective ESG initiatives. The underrated status of this risk could be attributable to the fact that many participants classify ESG to predominantly be a driver of reputational damage or be a regulatory exposure today, both of which feature in Australia’s top 10 list at number two and number six respectively.
Climate change: This risk has risen from 31 in Aon’s 2019 survey to 23 in the current one, globally. Despite its jump, it is not rated as a Top 10 Risk. However, Australian participants have rated climate change as a top 10 threat in three years’ time, which differs markedly from the global results. And, we certainly expect to see climate change risk make its way up the ladder in future surveys. From Aon’s perspective, climate change is not only an emerging risk. It is an urgent risk. According to Aon’s Global Catastrophe Recap: First Half of 2021 report, which evaluates the impact of natural disaster events that occurred worldwide, insured losses from natural disasters hit a 10-year high of US$42 billion in the first half of 2021.
We also know from research such as the recent IPCC report that climate change will continue to have significant impacts that businesses across all industries need to be planning for. For example, more extreme weather can have substantial impacts on global supply chains, put great stress on infrastructure, and add strain to insurers and other financial institutions. There are also transitional risk considerations associated with the impacts of countries converting to de-carbonising strategies. Planning in new ways has become a must for the reality of climate change, which presents a systemic threat that is going to justify a completely fundamental change in terms of how companies think and plan for the future.
Supply chain risk: Aon classifies complex supply-chain risk as one of the big six risks facing businesses today. The pandemic has served as a wake-up call to businesses to consider how ‘grey swan’ events — major events that are unlikely to occur but are becoming increasingly common — could impact their supply chains and their overall operations. Besides a pandemic, other grey swan events could manifest in the form of major cyber-security attacks, significant climate incidents and global wars. While supply-chain risk is becoming more concentrated, frequent and broadly defined, challenges in the insurance market are poised to contribute to the size of the problem. Contingent business-interruption coverage in particular is increasingly under review. There have been more restrictions because of the ever-growing complexities of internationalisation and globalisation of trade, as well as the growth of technology and logistics solutions.
How organisations can address future challenges
Addressing current and emerging risks in a methodical manner is clearly critical, but it’s equally important to ensure that enterprise risk management does not prioritise process over outcomes. Organisations can have excellent processes in place, but without appropriate behaviours — individual, collective and organisational — even the best processes won’t serve their intended purpose.
There are numerous ways to improve an organisation’s focus on outcomes, but one that is fundamental to risk culture is the involvement of, and indeed leadership by, line management. Although perspectives on risk may differ between the boardroom and the shop floor, a common risk ethos must prevail across the entire organisation.
About the survey
Aon’s 2021 Global Risk Management Survey, a biennial web-based research report, was conducted in the second quarter (Q2) of 2021 in 11 languages. The research gathered the responses of 2344 risk decision makers from 16 industry groups, which included small, medium and large companies in 60 countries around the world.
In Australia, we captured 121 responses across various industries with the top represented industries being public sector; energy, utilities and natural resources; financial institutions; construction and real estate; and retail and consumer goods.
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