In a reflection of the global results, Cyber risk and Business Interruption risk take first and second place respectively in the risk ranking from the 2021 survey. The result of the digitalisation of the global economy and the interconnectivity of systems has magnified the impacts of cyber incidents and the UK clearly focusses on this as a priority risk and a global threat. Business interruption also follows a worldwide trend, where the speed of communications and expectation of high availability meets cost cutting, resulting in interconnected systems that are not necessarily resilient to risk events.
Top 10 Current Risks
- 1 Cyber Attack/
Data Breach
- 2 Business
Interruption
- 3 Damage to
Reputation/
Brand
- 4 Failure to
Innovate/Meet
Customer Needs
- 5 Economic Slowdown/
Slow Recovery
- 6Failure to Attract
or Retain
Top Talent
- 7 Supply Chain or
Distribution Failure
- 8Climate
Change
- 9 Pandemic Risk/
Health Crises
- 10Regulatory/
Legislative Changes
Below the first two places, the UK risk prioritisation then starts to differ considerably from the global view of risk rankings, and to understand the dynamics of this it is important to set the unique economic backdrop of the UK during the time of the survey; as in addition to dealing with the COVID pandemic, the UK has been transitioning to a new trading relationship with the EU, and attempting to forge new trading arrangements with other global economies as a result of Brexit.
Framing the GRMS results through the lens of companies aiming to thrive in a post Brexit economy and to pick up growth as the global economy recovers post COVID, the subsequent entries in the risk prioritisation fall logically into place. Companies with strong Brands are likely to maintain sales and market share compared to their competitors in most market conditions, and the UK results highlights the importance of maintaining a strong brand with Brand risk rated the third most important overall.
In the midst of this market change, companies that fail to innovate are more likely to fail. Correspondingly innovation risk is ranked next, at number four, as respondents to the survey reflect the risk contained in the significant changes and innovation that are required in order to create new products and services, increase productivity, cut costs and differentiate themselves from competition.
Economic slowdown is the next risk identified in the UK results. At the time of the survey COVID had already significantly affected the UK economy and there was considerable uncertainty about the speed of recovery. Brexit has added another layer of uncertainty to the economic forecasts, with organisations unclear on the new levels of trade with Europe and if the balance of trade will expand with other economies.
At number six, failure to attract or retain talent is certainly a feature of the UK view of risk in the survey that is not reflected so highly elsewhere (From a global point of view this same risk has not been in the global top 10 risk in the last two GRMS editions) The reason for this is that the UK economy had grown reliant on European workers across all levels of employment, from highly skilled workers gravitated to the UK to work for blue chip organisations, across the spectrum to workers on a minimum wage or the gig economy. The change to freedom of movement due to Brexit has resulted in a large number of people no longer being present in the talent pool on which the UK economy was reliant. The ranking of this risk then reflects the uncertainty around a companies ability to attract and retain a workforce to deliver growth.
Looking at the emerging risks identified in GRMS 2021, the top risks remain dominated by those listed above. Given the scale of the COVID recovery and companies still working out the ramifications of Brexit it is clear that these risks and the associated effects of these risks are set to set the agenda for the coming years.
There are two emerging risks that can be highlighted which are not directly related to the risks discussed above, and these are Climate Change (#5 in the emerging risks, #8in the UK prioritisation) and ESG (#7 in the emerging risk table and #17 in the UK prioritisation). The ESG aspect is being driven by changing investor behaviour with funding availability being constricted for companies with a poor track record of Environmental, Social or Governance impacts. Modern day communications are such that poor ESG practice can be quickly highlighted to large groups of people, and the actions of activists, protestors and shareholder activism can have an immediate effect on an organisation.
Climate Change itself is a clear example of this, with the risk being manifest in a number of areas; Activism is highlighting the behaviours that companies are expected to change, companies themselves are being hit by the effects of climate change, companies have to overcome a number of transition risk as they decarbonise their operations, and overall the speed of change is not fast enough so rapidly changing regulation and political decisions are likely to add significant challenge to how companies currently operate.
Top 10 Future Risks
- 1 Cyber Attack/
Data Breach
- 2 Business
Interruption
- 3 Failure to
Innovate/Meet
Customer Needs
- 4 Economic Slowdown/
Slow Recovery
- 5 Climate
Change
- 6Damage to
Reputation/
Brand
- 7 Corporate Social Responsibility/
ESG
- 8Supply Chain or
Distribution Failure
- 9 Increasing
Competition
- 10Cash Flow/
Liquidity Risk
Looking to the future the top ten risks stay broadly the same for UK business, although there is a sense of returning to normality as pandemic and regulatory changes drop from the list. The new entrants to the list reflect the new dynamics of the economy, with the increasing importance of Corporate Social responsibility and ESG as green financing is becoming more prevalent, and also Increased Competition as firms adjust to new market norms in the new trading arrangements with the EU and the rest of the world.