Business Leaders Struggle to Manage Risks Associated With Megatrends: Survey
Despite recognizing the significance of “megatrends” like trade, technology, weather, and workforce, 72% of business leaders feel they aren’t adapting quickly enough to manage the associated risks, according to Aon’s inaugural Business Decision Maker Survey. The study also revealed a correlation between confidence in risk management and access to essential data and analytics, highlighting a significant gap in preparedness for weather-related risks.
A majority, 86%, of business decision makers agree on the importance of properly managing risks stemming from the four megatrends, Aon found. When asked about each megatrend individually, 98% said managing technology risk was important for their business, and 86% said it was extremely important. For workforce risks, 98% said managing these risks was important, and 84% said it was extremely important. Some 95% said managing trade risk was important, while 80% felt it was extremely important. And though 90% indicated managing weather risk was important, only 70% felt it was extremely important for their business, the survey found.
“These findings confirm what we’re hearing from our clients every day – the world is more volatile and complex, creating uncertainty and need for new solutions across our global economy,” Aon CEO Greg Case said in a statement.
Despite recognizing the significance of these risks, most decision makers admit their businesses are not adapting quickly enough. Nearly three-quarters, or 72%, said their company is not moving fast enough to adapt to one or more megatrends, with 47% reporting they are struggling to keep pace with two or more. Only 3% reported difficulties with all four megatrends simultaneously.
The survey revealed a clear link between confidence in risk management and access to essential data and analytics. Among business leaders who feel “very confident” in their company’s ability to effectively manage risk exposures over the next year, 60% say they have all the necessary data and analytics across all four megatrends. In contrast, only 41% of less confident leaders reported having this critical information at their disposal.
When it comes to climate data specifically, a mere 39% of business leaders expressed strong confidence that their company possesses the accurate and necessary climate data, analytics, and modeling required to protect their operations. This highlights a gap in preparedness for weather-related risks, the survey found.
The survey found that business decision makers are slower to act on weather risk compared to other megatrend risks. For example, while 72% have quantified the potential profit and loss impacts of cyber attacks, only 59% have done the same for weather events.
Trade and Technology Risks
As trade issues worsen, 74% of business leaders are taking more personal responsibility for supply chain functions at their companies in the last year, while the remainder report decreased or the same level of responsibility. Supply chain failure was cited as a top trade risk by 38% of respondents, second only to exchange rate fluctuation at 40%.
How business leaders view top trade risks differs between U.S. and E.U./U.K. respondents, the survey found. In the U.S., the top trade risks to businesses were supply chain/distribution failure (48%) and exchange rate fluctuation (45%). Among EU/UK respondents, the top trade risks were war/political instability (44%) and commodity price risk/scarcity of materials (38%).
When it comes to managing technology risks, companies have taken several actions in the past year. The top steps taken include quantifying cyber risk scenarios (72%), increasing training on cybersecurity (67%), and increasing hiring for cybersecurity roles (66%).
Business decision makers are also assessing risks associated with technology, with 63% reporting that they have measured the ROI of cyber security initiatives and 61% audited IT suppliers to manage third-party risks and “IT sprawl” in the last year.
Weather and Workforce Risks
According to the survey, 66% of business decision makers understand that climate issues raise new risks and vulnerabilities that require a significant change in how businesses think about the future.
However, compared with the other three megatrends, decision makers are slower to act on weather risk, Aon reported. The top actions taken in the past year to address weather risks were quantifying the financial impact from weather events (59%), expanding weather or climate insurance solutions (59%), and improving climate risk and catastrophe models (55%).
In contrast, 72% of executives said they have quantified the profit-and-loss impacts of cyber attacks, the report noted.
Specific steps taken to deal with weather and climate risks vary between the U.S. and E.U./U.K respondents. In the U.S., the top completed steps related to weather risk were: workforce safety and health related to heatwaves (45%), rising insurance costs (43%), and disruption or displacement of operations (42%). Among E.U./U.K. respondents, the primary focus was on decarbonization and clean energy transition (47%), followed by rising insurance costs (43%) and workforce safety and health related to heatwaves (40%).
Companies are also adjusting their workforce strategies, Aon found. For example, 57% of respondents said their company changed benefits or health care offerings in the last year.
The survey also found companies making adjustments to meet the talent demands of green tech. Some 52% are reskilling or upskilling their workforce for the demands of green tech, while 45% are creating a mission-driven culture to attract and retain talent.
“It’s clear that without taking action, business decision makers will not be able to effectively manage their exposures to these megatrends over the next year,” Aon President Eric Andersen stated. “As the megatrends grow more interconnected, businesses which adopt a comprehensive, data-driven, forward-looking approach to risk management will more confidently address challenges and seize opportunities amid uncertainty.”
To view the full report, visit the Aon website. &