Provides a detailed analysis of the most significant risks that global businesses will likely face in the coming year. Based on insights from KPMG’s CEO Outlook survey and the Eurasia Group’s annual geopolitical risk forecast, it identifies key trends and challenges organizations must navigate to ensure growth and stability.

Key Findings

1. Geopolitical and Political Uncertainty
   • Geopolitical Risks: Highlights geopolitical turbulence and shifting alliances as top threats. It emphasizes the need for businesses to move from reactive to proactive geopolitical risk management.
   • Political Uncertainty: Political instability and policy changes across various regions pose significant risks to organizational growth and operational stability.
2. Trade Policy Restrictions
   • The rise in global trade restrictions, which have nearly tripled since 2019, is identified as a significant risk. These protectionist policies can disrupt supply chains, hinder market access, and create barriers to economic growth.
3. AI Governance Gaps
   • The rapid advancement and integration of artificial intelligence (AI) present both opportunities and risks. Underscores the importance of ethical and responsible AI deployment to maintain stakeholder trust. Organizations are urged to address governance gaps by prioritizing transparency, accountability, and fairness in their AI systems.
4. Operational Resilience Amid Geopolitical Vulnerability
   • The increasing number of conflicts and geopolitical tensions necessitate enhanced operational resilience. To mitigate these risks, businesses are advised to implement proactive risk management practices, conduct scenario planning, diversify supply chains, and strengthen cybersecurity measures.
5. Climate and Environmental Risks
   • Stresses the impact of climate change and extreme weather events, such as El Niño, on global operations. Companies are encouraged to drive sustainable innovation and integrate environmental, social, and governance (ESG) principles to prevent disruptive regulation and enhance long-term resilience.

Recommendations for Business Leaders

1. Dynamic Risk Assessment
   • Prioritize and quantify risks using dynamic risk assessment tools to understand the interconnectedness of risks within operations and supply chains.
2. Supply Chain Visualization
   • Visualize and assess supply chain exposures to trade policies and geopolitical risks and develop strategies to mitigate potential disruptions.
3. Trusted AI Integration
   • Accelerate the adoption of AI while ensuring ethical conduct and responsible practices to harness its potential benefits.
4. Sustainable Innovation
   • Drive rapid ESG progress to address climate disasters, political conflicts, and societal inequalities, transforming businesses for a sustainable future.
5. Public Engagement Strategy
   • Develop comprehensive strategies for public engagement on social and political issues, ensuring thoughtful and strategic communication.

Overview

Highlights the key challenges and trends facing businesses in the current geopolitical landscape. It emphasizes the increasing mistrust among countries, leading to a reluctance to cooperate on global peace and security issues. This has weakened multilateral organizations like the United Nations and the World Trade Organization as nations prioritize their national interests over collaborative diplomacy.

Underscores the importance of operational resilience in the face of vulnerability caused by geopolitical uncertainties. It also touches upon the impact of trade policy restrictions, AI governance gaps, and the need for businesses to navigate risks by sector. Overall, the Overview sets the stage for the subsequent discussions on specific risks and strategies for business leaders to address these challenges effectively.

Bottom line 1: Trade policy restrictions

Covers the significant shifts occurring in global trade and investment dynamics. It highlights how national security priorities and a surge in policy interventions increasingly influence these changes. The document points out that global trade restrictions have nearly tripled since 2019, indicating a trend towards more protectionist measures by various countries.

Moreover, it underscores the substantial impact of conflict on the world economy, with conflict-related issues affecting approximately 12.9% of global GDP. This emphasizes the interconnectedness of geopolitical tensions and economic stability, urging businesses to consider these factors in their strategic planning.

Furthermore, the regulatory environment for emerging technologies is discussed, indicating that businesses may face challenges in navigating uncharted regulatory waters. This complexity suggests that companies may need more time, money, and effort to ensure compliance with evolving regulations.

In response to these challenges, it advises business leaders to prioritize supply chain resilience amidst escalating geopolitical tensions. Investment and location decisions should be based on economic factors and political considerations to mitigate risks associated with trade policy restrictions. Additionally, companies are encouraged to take the lead in developing robust AI strategies and policies to adapt to the changing geopolitical landscape effectively.

Bottom line 2: Vulnerability calls operational resilience

Discusses the implications of the prevailing mistrust in the current geopolitical landscape. This mistrust has resulted in countries prioritizing their national interests over collaborative efforts, weakening multilateral organizations like the United Nations and the World Trade Organization. Consequently, the lack of global cooperation has created vulnerabilities for businesses operating in this uncertain and fragmented environment.

Underlines the critical importance of operational resilience as a strategic response to these vulnerabilities. Operational resilience refers to a company’s ability to anticipate, prepare for, respond to, and adapt to disruptions, ensuring the continuity of its operations and the ability to recover swiftly from adverse events. In the context of geopolitical uncertainties and shifting global dynamics, businesses need to enhance their operational resilience to navigate the challenges posed by geopolitical risks effectively.

By strengthening their operational capabilities, businesses can better withstand and adapt to unforeseen disruptions, such as trade policy changes, geopolitical conflicts, or supply chain interruptions. This proactive approach to operational resilience enables companies to mitigate risks, enhance their agility in responding to crises, and maintain business continuity in the face of geopolitical uncertainties.

Bottom line 3: AI governance gaps

Delves into the critical challenges surrounding the governance of artificial intelligence (AI) and the implications of regulatory gaps in the AI landscape. It emphasizes the need for companies to address these governance gaps to ensure the ethical and responsible deployment of AI technologies in various sectors.

One of the critical points highlighted is the growing importance of establishing robust governance mechanisms to manage the ethical, legal, and societal implications of AI implementation. With AI technologies becoming increasingly pervasive across industries, organizations need clear guidelines and frameworks to govern AI systems’ development, deployment, and use. This includes considerations around data privacy, algorithmic bias, transparency, accountability, and compliance with regulatory requirements.

Also, it underscores the significance of building trust and transparency in AI initiatives, internally among employees and externally with consumers and stakeholders. Companies are encouraged to adopt a human-centric approach to AI, ensuring that AI technologies are developed and deployed in a manner that prioritizes the well-being and safety of individuals. This approach involves engaging with employees to address concerns about the impact of AI on their roles and fostering a culture of responsible AI use within the organization.

Furthermore, it emphasizes the need for companies to stay proactive in addressing AI governance gaps, given the rapid pace of AI advancement and the evolving regulatory landscape. By taking steps to enhance AI governance practices, organizations can not only mitigate risks associated with AI deployment but also capitalize on the transformative potential of AI to drive innovation, efficiency, and competitiveness.

Navigating risks by sector

Analyzes how geopolitical risks impact industries differently, offering sector-specific insights. Using the KPMG Financial Performance Index (FPI) methodology, it assesses the financial health of sectors amid global geopolitical risks. This helps investors, financiers, regulators, and governments make informed decisions.

Explores the challenges various industries face in today’s geopolitical landscape. It emphasizes the need for sector-specific risk management strategies. For instance, the energy sector is vulnerable to geopolitical tensions in critical regions, while the tech, media, and telecom sectors face data privacy and cybersecurity regulatory challenges.

Moreover, it emphasizes the need for businesses to adapt their operational and strategic approaches based on sector-specific implications of global geopolitical risks. By understanding how geopolitical dynamics such as trade policy restrictions and AI governance gaps affect their industry, companies can proactively mitigate risks, capitalize on opportunities, and enhance their resilience in a rapidly changing environment.

What can business leaders do?

Provides steps for business leaders to address geopolitical risks and navigate global challenges. These recommendations help organizations enhance resilience, strategic decision-making, and risk management. Following these steps, leaders can proactively manage risks, improve resilience, and make informed decisions in a complex global environment.

1. Create a systematic approach to understanding risk exposure: Business leaders should develop a structured methodology for assessing and understanding their company’s risk exposure to geopolitical factors. This involves mapping potential outcomes of issues back to revenue and cost drivers to make informed decisions based on a comprehensive understanding of the risks involved.
2. Establish ownership of risk verticals: To prevent siloed approaches to risk management, business leaders should assign specific board members ownership of certain risk areas. By ensuring that responsibility for risk management is distributed across the organization and shared in board meetings, companies can foster a more integrated and holistic approach to risk mitigation.
3. Regularly report on risk assessments: Business leaders are encouraged to provide systematic and regular updates on risk assessments and mitigation plans to the board, regulators, and potentially the public. Transparent reporting on risk management practices can help ensure that frameworks are up-to-date and aligned with the evolving geopolitical landscape.
4. Challenge prior assumptions and seek external expertise: Leaders should be willing to challenge existing assumptions about geopolitical risks and be open to bringing in external experts when needed. By leveraging diverse perspectives and expertise, organizations can strengthen their frameworks for navigating geopolitical risks and enhance their ability to anticipate and respond to emerging challenges.
5. Bring diverse perspectives to the board: Business leaders are advised to promote diversity on their boards by including individuals with various backgrounds and specialties. This diversity of perspectives can enrich discussions, improve the quality of information available for decision-making, and enable more rigorous testing of potential geopolitical scenarios.

Conclusion

Summarizes the report’s insights on geopolitical risks for businesses, highlighting the need for proactive risk management, strategic preparedness, and adaptability. It emphasizes staying vigilant, understanding trends, and mitigating risks to ensure organizational resilience and success in a complex global landscape.

1. Clear view of risk universe and risk appetite: Business leaders should understand their organization’s risks and their interdependencies. Defining risk appetite and creating action plans can help navigate geopolitical uncertainties and mitigate threats effectively.
2. Geopolitical trends in 2024 and beyond: The conclusion highlights trade regionalization, global conflict, climate risk, and the tech race as the main factors of business volatility in 2024. It stresses supply chain resilience amid geopolitical tensions, investment and location decisions influenced by politics, companies leading AI strategies, and varying trends in ESG regulation and corporate scrutiny.
3. Adopting a proactive stance on geopolitical exposure: Business leaders should address geopolitical risks proactively, starting at the board and executive levels. Regular monitoring, scenario planning, stress testing, and mitigation strategies can enhance readiness for risks and opportunities from geopolitical developments.
4. Snapshot of elections across the globe: The conclusion highlights global polls in 2024 and beyond, reminding businesses of the political dynamics and uncertainties that can impact them and emphasizing the need to stay informed and adaptable.

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