Top Risks Facing Organizations in Latin America

Current Risks

Despite the resurgence in employment, recovery in the service sector and strong commodity prices that followed the pandemic, Latin American organizations have grappled with the impacts of persistent high inflation and interest rates, slow economic growth and geopolitical volatility. The region’s greatest strengths—vast natural resources, competitive labor costs and relatively open foreign trade—are hindered, in part, by the region’s continuing struggles with social inequality, political volatility, high government debt, climate change and corruption. 

Political volatility within the region complicates the implementation of structural reforms, which is largely erratic. And Latin American participants in our latest survey expressed concern over this dynamic, ranking political risk and regulatory or legislative changes as their number five and three current risks, respectively.

Top 10 Current Risks: Latin America

1. Business Interruption
2. Cyber Attack or Data Breach
3. Regulatory or Legislative Changes
4. Commodity Price Risk or Scarcity of Materials
5. Political Risk
6. Economic Slowdown or Slow Recovery
7. Supply Chain or Distribution Failure
8. Property Damage
9. Damage to Brand and Reputation
10. Weather and Natural Disasters

Cyber attack or data breach, ranked the number nine current risk in 2021, rose to number two in 2023. This significant jump likely reflects the rapid adoption of digital technologies to close technology gaps in some countries and digitalize industries across sectors. Several high-profile cyber events occurred in the region in recent years, perhaps most notably the April 2022 ransomware attack on Costa Rica’s finance ministry that paralyzed the government and put companies in the region on notice.

Respondents from Latin America ranked damage to brand or reputation as their ninth-biggest current risk—the first time it has appeared in the top 10 since we began surveying the region. This could reflect the rise of stronger regional brands receiving sizable investments from their owners across the region and even worldwide, and it appears to be a sign of increased maturity from risk managers, who are increasingly recognizing risks to intangible assets such as brands, reputation or intellectual property.

Respondents ranked weather and natural disasters as the number 10 current risk in Latin America—the only region in which this risk appears in the top 10. Scarce public support for disaster relief in the region puts the onus on companies to manage and recover from events. At the same time, awareness of the potential business disruptions posed by extreme weather appears to be on the rise as floods, landslides and droughts in the region grow more frequent and severe. Half of respondents from Latin America noted they expected that increasingly volatile weather could prevent them from hitting their business targets. 

Underrated Risks

Because participation in our survey took place while much the region suffered from sluggish growth, human capital risks, such as failure to attract and retain top talent and workforce shortages, did not rank among the top 10 current risks for Latin America, unlike in other regional rankings. And yet the fact that they also did not make the list of top 10 future risks is concerning, given that stronger demand for talent will accompany future growth. Wider acceptance and availability of remote work opportunities means that Latin America–based organizations need to remain competitive to garner top talent in a global market, especially in high-demand STEM fields. Building this competitive advantage can help ensure companies are able to take full advantage of opportunities to support their growth, as well as evolving trends such as nearshoring.

Respondents in Latin America ranked failure to innovate and meet customer needs as their number 18 current and number 17 future risk. Like other intangible assets, innovation and customer experience require investment and protection. Although a significant part of Latin America’s economy is served by local subsidiaries of multinational corporations centering their innovation at headquarters, by reinforcing employer branding and benefits strategies to attract and retain a diverse workforce, regional champions and multinationals can help connect with their customers and incubate innovation locally. 

As a group, environment-related risks (such as weather and natural disasters [ranked 10]; environmental risk [ranked 14]; climate change [ranked 15]; and environmental, social and governance [ESG] and corporate social responsibility [CSR] [ranked 28]) can be considered an underrated category among current risks. Though some risks rank higher on the region’s future top 10 list—climate change moves up to number seven, for example—the survey results signal that the level of attention to environmental matters is inadequate. In other regions around the world, scrutiny of human activity’s impact on the environment and efforts to reduce that impact are on the rise. As a result, leaders of organizations in the region should focus on these risks to strategize and prepare as consumers, investors and governments hold their organizations increasingly accountable for their environmental impact.

Future Risks

Risks requiring long-term planning, such as climate change, cash flow and liquidity risk and increasing competition were ranked among Latin America’s future top 10, at numbers seven, eight and nine, respectively. Meanwhile, more immediate, event-based risks fell in future ranking. For example, the top-ranked current risk, business interruption, fell to number six in future risks, while property damage, ranked number eight in current risk, fell out of the future top 10 altogether, to number 11. Taken together, these trends are an indication of organizations’ increasing focus on building agility and resilience to support growth amid ongoing challenges. 

Top 10 Future Risks: Latin America

1. Political Risk
2. Cyber Attack or Data Breach
3. Commodity Price Risk or Scarcity of Materials
4. Regulatory or Legislative Changes
5. Economic Slowdown or Slow Recovery
6. Business Interruption
7. Climate Change
8. Cash Flow or Liquidity Risk
9. Increasing Competition
10. Weather and Natural Disasters

Political risk is already important as a current risk, at number four, but it is also seen as a growing threat: it dominates the ranking of future risks at number one. This reflects geopolitical instability around the world but especially reflects the severe instability experienced in Latin America, which frequently witnesses abrupt swings from one extreme to the other along the political spectrum. This makes it difficult to promote consistent policy reforms and introduces unpredictability that makes long-term planning an even harder task. Unsurprisingly, regulatory and legislative change is seen as both a key current and future risk, ranked at number three and number four, respectively.

How Can Organizations in Latin America Mitigate These Risks Effectively?

Survey participants from Latin America reported their level of readiness for the top 10 current risks at 53 percent, while the average reported readiness of other regions surveyed was around 65 percent. To close this gap, organizations should first quantify and understand their risk to make informed decisions to address identified vulnerabilities and create robust action plans for continuity, including evaluating risk finance or transfer solutions. Though the region continues to offer many growth opportunities, local expertise is needed to successfully navigate its risks and volatility.

While organizations cannot eliminate risks posed by macroeconomic volatility within or outside of Latin America, they can explore solutions to mitigate or diversify these risks. For example, geographical diversification could help promote stability amid political, legislative and regulatory changes. An informed approach involving strategic alliances, joint ventures or acquisitions could accelerate efforts to capture the benefits of diversification. Protection is critical when embarking on such efforts because the decisions made by authorities that regulate competition around the world can be unpredictable, potentially posing obstacles to finalizing agreements.

Latin America continues to expand its digitalization, and legislation to protect individual rights and privacy has been implemented in various countries within the region. There is clear recognition among survey respondents of the risks that go along with the region’s adoption of digital systems and more advanced technology, evidenced in the position of cyber attack or data breach as their number two current and future risk. Careful evaluation of cyber vulnerabilities, together with corrective action and insurance protection, can help organizations safeguard their continuity in the event of a cyber attack or data breach.

While respondents ranked both climate change and weather and natural disasters in the top 10 future risks for the region, most reported they do not have plans in place for a transition to low-carbon energy, nor do they plan to disclose the environmental impact of their operations. With global capital market investors increasingly conscious of their environmental footprint, organizations’ growth can be inhibited if they cannot first plan to reduce their environmental impact and then measure and report their progress toward their sustainability goals. Advanced climate analytical models that fully consider the current effects of climate change may offer organizations an updated view of their exposure and help them cope with and plan for frequent extreme weather events.

General Disclaimer
This document is not intended to address any specific situation or to provide legal, regulatory, financial, or other advice. While care has been taken in the production of this document, Aon does not warrant, represent, or guarantee the accuracy, adequacy, completeness or fitness for any purpose of the document or any part of it and can accept no liability for any loss caused by reliance on it. Any recipient shall be responsible for the use to which it puts this document. This document has been compiled using information available to us up to its date of publication and is subject to any qualifications made in the document.