KPMG Report: Risk Management Crucial as Geopolitical Tensions, Trade Barriers, & AI Governance Threaten Global Businesses

A new report from KPMG International underscores the critical importance of proactive risk management for global businesses as they navigate an increasingly complex landscape of geopolitical instability, trade restrictions, and divergent AI governance. The report, "Top risks forecast: Bottom lines for business in 2024 and beyond," highlights how these three key risks are undermining long-term sustainable growth and urges companies to adapt their risk strategies accordingly.

KPMG's analysis reveals a stark increase in global risk factors:

1. Trade Risk: Since 2019, global trade restrictions have nearly tripled to approximately 3,000. This surge in protectionist policies poses significant risks to supply chains and market access, particularly for businesses operating across borders. Companies are advised to reassess their global trade strategies and consider diversification to mitigate these risks.
2. Geopolitical Risk: The report points to an alarming rise in global conflicts, with 91 countries involved in some form of conflict in 2023, up from 58 in 2008. This widespread instability is estimated to have shaved 12.9% off global GDP. KPMG stresses that operational resilience is no longer optional but a necessity, recommending proactive risk management practices, scenario planning, and enhanced cybersecurity measures.
3. AI Governance Risk: While AI investment has skyrocketed more than fivefold between 2013 and 2023, the lack of a harmonized global regulatory framework presents a significant governance risk. Companies are urged to take the lead in managing this risk by ensuring ethical and responsible AI deployment, focusing on transparency and accountability to maintain stakeholder trust.

The report's sector analysis reveals that the Energy and Natural Resources industry faces the highest risk exposure, particularly due to geopolitical tensions in resource-rich regions. This sector also recorded the lowest Financial Performance Index score, indicating that poor risk management is already impacting financial stability.

Stefano Moritsch, Global Geopolitics Lead at KPMG International, emphasized the urgency of the situation: "The data makes for sobering reading, but proactive risk management can safeguard long-term viability." He outlines five risk management priorities for CEOs:

1. Comprehensive risk assessments
2. Continuous monitoring of geopolitical developments
3. Supply chain diversification
4. Operational resilience enhancement
5. Strong stakeholder relationships

Moritsch added that traditional risk management approaches focusing solely on financial metrics are no longer sufficient. "In today's multipolar world, political risk and AI governance risks need a seat at the boardroom table," he stated.

The KPMG report serves as a clarion call for global business leaders to elevate risk management to a strategic priority. In an era where geopolitical tensions, trade barriers, and technological disruptions can quickly erode profits and market share, proactive, multifaceted risk management is not just a safeguard but a competitive advantage. The message is clear: companies that effectively navigate and manage these emerging risks will be best positioned for sustainable growth in 2024 and beyond.

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