Low interest rates have been a common theme in markets around the world for most of the last decade, in spite of the recent increase to the US Federal Funds Rate and a recent uptick in long-term yields. Recent geopolitical shocks and volatility have created additional market uncertainty that makes managing investments, such as pension funds, much more challenging.

• The unexpected results of the UK Brexit vote and US Presidential election have both increased uncertainty over future policy directions for two major world economies.
• 2017 elections in France and Germany, as well as oil price fluctuations and the likely collapse of the TPP and TTIP trade agreements may cause additional volatility.

Defined Benefit pension obligations are often a significant portion of an organizations’ enterprise risk. Underperforming retirement funds and higher annuity costs resulting from low interest rates can also create workforce management issues, as employees with Defined Contribution funds may end up unable to afford to retire. Employers may be constrained in their workforce planning to meet strategic needs.

Balancing volatility in assets and liabilities is not just a long-term challenge for meeting pension obligations, but can also affect stock prices and access to capital, restricting organizations’ ability to pursue growth opportunities.

While low interest rates may make borrowing easier, the increased enterprise risk perception and potential impact on workforce planning can constrain options for business strategy, making this a major boardroom issue.

However, CFOs, Risk Managers and HR departments may be treating different symptoms that result from low rates and high volatility in isolation, without considering the total potential business impact.

The health and stability of global trade volumes looks uncertain for 2017 due to geopolitical, macroeconomic risks and rising oil prices. Brexit and the new US administration could signal the retreat of globalization and organizations should prepare.

• Confrontational political and economic rhetoric is stoking fears of a potential US-China trade war with serious ramifications—particularly for export companies with significant supply chain exposure.
• Increasing populism, anti-capitalism, anti-globalization and resistance to trade agreements—such as NAFTA, TPP and TTIP, and the EU—could lead to more protectionist policies and a more complex and uncertain regulatory and litigation environment.

Changes to trade agreements—particularly rising tariffs—could heavily impact supply chains, leading to increased costs for almost every business worldwide.

Uncertainty over access to export markets or shifting international regulatory frameworks could force clients to seek new and riskier markets or rely more on their domestic markets. This may result in lower trade flows, diminished growth and higher unemployment.

Trade policies and agreements could heavily impact currency volatility, potentially affecting clients with high currency exposure risk.

The C-Suite wants to mitigate supply chain exposure to geopolitical risks by finding new partners and suppliers in other markets. They must also manage potential credit risks from working with unfamiliar suppliers, who may default on payments.

CFOs want to protect their organization against changes in trade agreements and understand how currency volatility could impact their exposure to a fluctuating US dollar.

A new set of recommendations designed to give investors, lenders and insurers a better idea about how climate change will affect individual businesses has been published amid possible challenges to global efforts to combat climate change.

• The Financial Stability Board’s Task Force on Climate- Related Financial Disclosures (TCFD), established by Bank of England Governor Mark Carney released its first report, outlining the business case for companies to voluntarily disclose their climate-related information.
• The Paris Agreement has now been ratified by a majority of signatories and there is a truly multilateral governmental consensus dedicated to ameliorating the worst effects of a changing climate.

Storms, flooding and tornadoes can all cause huge amounts of damage to businesses. This can be through direct damage to company property, but it can also be through costs incurred via business disruption, if third-party businesses are hit and supply chains are disrupted.

The risk is greater for capital-intensive organizations, particularly those with a lot of land-capital, such as the real estate industry, or investment bodies like pension funds, who might have a significant amount of capital tied up in property.

CEOs are being asked to adopt the TCFD recommendations in order to make markets more efficient and economies more stable, resilient and sustainable.

Risk managers and CFOs need to be aware that one of the key TCFD recommendations relates to potential impacts of climate-related risks on an organization’s business strategies under various future scenarios. Clients will want guidance evaluating the impact of climate change and will need tools to quantify and be prepared for more regulations to further support measuring the risks.

The scale and impact of cyber attacks and breaches are increasing exponentially. More than 75% of US organizations are not prepared to respond.

• Recent attacks reveal that even established companies and governments can be vulnerable. Last December over a billion Yahoo accounts were hacked, the biggest breach in history. Germany’s domestic intelligence agency has said that Russia is trying to destabilize its 2017 election with cyber attacks.
• The rise of the Internet of Things means more connected devices can be exploited by hackers, as seen in the October 2016 US East Coast DDoS (Distributed Denial of Service).

A cyber breach can have a significant business impact, with hidden and direct costs that many organizations may not be sufficiently able to assess. Broad ramifications include business interruption, lost revenue and intellectual property, and reduced shareholder value.

Potential indirect costs include regulatory compliance issues, fines, legal liabilities, investigation expenses, crisis communications, and technological improvements.

Hidden costs could include operational disruption and increased costs of doing business, lost contracts, insurance premium increases, and a long-term negative impact on brand reputation.

The primary concern of the C-suite is their fiduciary responsibility to maintain successful operations. CFOs want to fully assess the potential cost of a breach and CISOs focus on improving threat assessment and safeguards.

Risk managers are evaluating the transfer of cyber risk exposure through cyber insurance. Talent and HR are cognizant that most breaches are caused by human error and are focused on training.

Multinational organizations constantly confront new challenges as they expand—market and employee forces are converging and forcing them to adopt more innovative strategies to mitigate costs and influence the health and wellbeing of their employee population.

• Aon’s recent 2017 Global Medical Trend Rates report found that while inflation for 2017 is predicted to be 2.8%, average cost increases for employer-sponsored medical plans are expected to rise by 8.2%. This rate of increase is up from 8.1% in 2016, on global inflation levels of 2.9%.
• Evolving demographics are bringing challenges of an increasingly older workforce and poor health habits becoming pervasive even in emerging and underdeveloped economies.

Aging workforces and multiple generations mean that employers need to understand and analyze their workforce structure and health risk, an exercise that should result in higher productivity or reduced absence related cost.

Non-communicable diseases (NCDs) are directly linked to modern lifestyles and are the biggest contributors driving high medical inflation. Perhaps more importantly, these diseases also affect performance, engagement and productivity in workforces.

The rise of chronic conditions like cardiovascular, cancer and respiratory conditions can can have a long term effect on insurance costs. which are at best slow to correct.

CEOs and CFOs want to ensure that local and global governance standards are being met with increased economies of scale and quantified global spending and ROI to deliver increased shareholder value.

HR managers need to accelerate their efforts at helping employees understand and begin to take steps to improve their own health risks.

Employee wellbeing is increasingly recognized as a key factor driving business results. It correlates with improved employee performance ratings, higher customer satisfaction, reduced absence and better talent retention.

• Going into 2017, US unemployment is close to a nine year low. The tight labor market may encourage employers to look at non-traditional, non-monetary options for attracting and retaining top talent.
• Time is the #1 excuse for not making healthy lifestyle choices. Poor health can be a factor in lost productivity and legal liability risk. A holistic wellbeing strategy and healthy work environment are critical to incorporating health and wellbeing into the work day and overcoming this hurdle.

It is more challenging than ever for clients to attract and retain top talent, and the hard costs of turnover are high. A study by the Society for Human Resource Management (SHRM) found that employers spend the equivalent of six to nine months of an employee’s salary to find and train their replacement.

A Gallup survey found that employees with higher levels of wellbeing are more engaged; as a result, they are 81% less likely to seek out a new employer in the next year. Higher wellbeing means employees are more likely to ‘bring their best self’ to the workplace, and above all, more likely to do their best work.

As the cost of health-related benefits continue to rise, CFOs want to look at the root causes of cost increases, and make tangible improvements to employee health, in order to make a difference.

According to Aon’s Benefits and Trends Survey, nearly 40% of boards drive corporate health and wellbeing decisions without data and analytics. Almost 60% of those who don’t manage health risks would like a better understanding of their impact.