Emerging and interconnected risks survey: Navigating a complex risk landscape

01

Concern about organizations’ resilience to emerging risks is high

Emerging risks are not just interesting; they have very real impacts on business models and strategy. They are also every risk in our survey taxonomy.

Every risk category has at least one risk in the top 10, highlighting how wide the risk agenda has become and the need to balance actual and perceived risk to make evidence-based decisions.

Change is needed. Only one in two (50%) are confident their organization’s approach enables it to respond to today’s risk environment. This drops to two in 10 (23%) being confident their organization’s strategy will remain resilient to risks that might emerge in the next 10 years.

There is huge opportunity to harness insights from across the organization

The past few years have broadened the risk agendas of organizations, with continually fluctuating risks competing for the same resources. Our respondents shared 752 emerging risks prioritized by their organizations, along with rich perspectives on where they expect change to occur in the next two and 10 years. However, untapped insight is waiting to be harnessed. Forty percent of the wider employee respondents also feel they have never been asked to feed into their organization’s emerging risk process.One in two respondents (49%) was not able to share the emerging risks of most concern to their organization, despite the majority being able to prioritize a top five view of change over the next two (95%) and 10 years (90%) through our survey approach. Why? The top action organizations are planning to take in the next two years is building an emerging risk framework, so we suggest a lack of consistent approach is behind this — something WTW is currently helping organizations navigate and implement, from horizon scanning to analytics-led risk optimization.

03

Organizations need to move from a siloed approach to risk and consider interconnectivity

There are no surprises in the list of emerging risks shared — the surprise was organizations see everything as an emerging risk. This reality is why we continue to invest in research and partner with experts to bring fresh perspectives. None of the risks operate in isolation; organizations need to move away from a siloed approach to risk and rethink the narrative of risk.

Whereas climate comes in at the top in many other risk reports across the industry, technology is dominating the emerging risks agenda, with artificial intelligence (AI), cyber risks and the future of technology taking three of the four top risk views. This clear dominance of technology doesn’t mean the other risks are unimportant; the economic outlook is the most interconnected risk, geopolitics, climate transition and climate change are all in the top five emerging risks and continue to be an emerging source of change for organizations. Reviewing the interconnectivity and views shared on what is driving the top risk choices uncovers hidden blind spots that a risk-by-risk focus can miss. We explore six key themes that highlight these touchpoints:

• Hardwired into the organization: technology touches everything, from talent to cyber, supply chain to geopolitical risk
• Geopolitics of everything: complications, sanctions, and explosive connections
• Intensifying and amplifying: climate transition picks up pace, natural catastrophe risks continue to surprise, environmental degradation rises
• An uncertain financial outlook: regulation, supply chain shocks, financial volatility, business impacts and insurance gaps
• People matter: the right people in the right place, with the right skills and resources
• Strategic success: the importance of risk frameworks and actions

Organizations with a consistent, enterprise-wide approach to emerging risks outperform their peers

To ensure risks are actionable, organizations need an approach that supports value and not just giving stakeholders comfort through annual reporting that they are secure. From assigning board-level responsibilities to using a finance-led approach informing their risk tolerance, organizations are deploying a wide array of approaches covering governance and operational actions. There is good news: Those taking more consistent action are outperforming their peers, and more interestingly, they range from small to large and complex organizations. If you don’t have a large team or budget, you can still find a smarter way to risk.

Whatever the risk tolerance, an enterprise-wide approach is needed

Without appropriate and enterprise-wide consideration of emerging risks, organizations run the risk of not capitalizing on the expertise and insights within their organizations, failing to turn those risks into commercial opportunities and growth. Developing an emerging risk framework is the top action organizations are planning in the next two years (25%). Only four in 10 (37%) decision makers and risk respondents believe they currently have an emerging risk framework in place.

Equally important is the need to align risk management plans with risk appetite and tolerance. Even within the same industry, organizations may have vastly different abilities and appetites for volatility and risk; one may be more comfortable to retain risk, while another may elect to transfer, terminate or treat risk wherever possible. Which route makes the most sense for a given organization depends on that organization’s financial strength, culture and goals. A clear risk tolerance framework agreed by the top of an organization empowers people throughout the organization to make decisions within their authority and escalate those that merit a more senior audience.

Benchmarking and narratives are more helpful than charts of top risks

There has never been a better time to take a second look at your organization’s approach and explore which emerging risks your peers and other industries have identified. When discussing a topic, whether with one colleague or at a crowded boardroom table, does everyone understand what you do? We believe there is a gap, and to be effective, organizations would benefit from rethinking the narrative of risk and focusing on an approach that can bring risk management decision making and financial priorities together — starting with revisiting the definition your organization uses.

The range of reasons why AI found its way to the top of the emerging risk list highlights the need to move beyond maintaining a risk list by broadening discussions. Of the 36 different descriptions shared, some highlight the overall topic (i.e., AI), while others focus on specific aspects, including talent flight risk if they trained staff in generative AI (genAI), misinformation, potential to compound cyber risks, needing to develop new internal policies and changes in lifestyle that could follow with AI adoption. Reviewing emerging risks and being future-ready is about more than maintaining a risk register or scoring acceleration, impact and severity; harnessing the full potential requires a deeper discussion.

Scenarios and storylines are favored by many

Today’s challenges require not only working hard but also working smart to find the optimal strategies that work for your organization. Just as no risk operates in isolation, leaders increasingly need to have a wider understanding of impacts beyond their function — that requires shared understanding and an approach that brings risk management decision making and financial priorities together. We believe this is why scenarios were highlighted as more useful than data to determine appropriate response strategies.

Using “storylines” — consistent narratives of plausible future events — helps us understand and manage complex risks. Transparency around process and methodology, with a common language, is essential to ensure a modernized portfolio risk management strategy is aligned with your organization's overall objectives.^[8] There has never been a better time for organizations to take action on these findings to ensure their storylines turn risks into opportunities.