KPMG identifies top 3 risks to sustainable business growth
By Digital News Asia June 10, 2024
- Global trade restrictions, geopolitical uncertainty, and AI governance gaps
- 5 initial steps for CEOs to take to navigate current “polycrisis” environment
Global businesses are facing slowing growth and mounting challenges to long-term sustainability, according to a new report from KPMG International. The findings in KPMG’s Top risks forecast: Bottom lines for business in 2024 and beyond shine a light on the multifaceted, complex challenges facing companies looking to grow internationally at a time of increasing divergence on regulation, conflict, technological advancement and political uncertainty.
The report’s analysis identifies the three most critical risks for businesses right now, known as ‘bottom lines’, likely to impact operations this year and beyond:
- Trade policy restrictions: Global trade restrictions have been on the rise, with approximately 3,000 restrictions imposed, nearly tripling since 2019. This trend of protectionist trade policies poses challenges for organizations operating in international markets. Such restrictions can create barriers and hinder economic growth, affecting supply chains and market access.
- Vulnerability calling for operational resilience: The geopolitical landscape is characterized by increasing vulnerability, driven by various factors such as rapid technological advancements, climate change, and geopolitical tensions. In 2023, a staggering 91 countries were involved in some form of conflict, a significant increase from 58 in 2008. This escalation of conflict has a profound impact on the global economy, with conflict estimated to have a 12.9 percent impact on global GDP.
- AI governance gaps: Artificial Intelligence (AI) has become a transformative force across industries, with investment in AI increasing more than fivefold between 2013 and 2023. While AI presents immense opportunities, it also brings about governance gaps that organizations must address.
Stefano Moritsch, Global Geopolitics Lead at KPMG International, said: “To some extent, the COVID pandemic was a rehearsal for some of the broader risks and profound threats facing companies today. Leaders have developed a degree of resilience but, for the first time in modern history, they’re facing challenges on multiple fronts – from conflict to complex regulation, climate change and a ‘patchwork’ adoption of AI in different nations and regions.”
Johan Idris (pic), Managing Partner of KPMG in Malaysia, concurred and pointed out that the rise of trade protectionism could disrupt Malaysia’s export-oriented economy which accounts for 66.1% of Malaysia’s GDP in 2023, adding, “Recent global events have revealed the fragility of the global trade ecosystem and disruptions will continue to impact organizations unable to shore up ample defenses. The way forward is for business leaders to build adaptive capacity to strengthen operational resilience. This can be done through an approach of top-down policy mandate and bottom-up corporate capabilities.”
He also highlighted the urgency for Malaysia to navigate the evolving landscape of AI governance, which will ensure the responsible integration of this transformative technology into the nation's economic fabric. On the AI front, while the Malaysian government is developing a governance and ethics code framework, companies must proactively shape their own AI strategies. The rapid advancements in AI mean that any regulatory measures will quickly become outdated, so businesses must stay ahead by taking the initiative in AI integration and governance.
"AI presents a significant opportunity to revolutionize Malaysia’s industries. However, it is equally important to establish clear guidelines that address ethical considerations and mitigate potential risks associated with AI deployment,” said Johan.
For organizations to effectively navigate the current “polycrisis” environment, KPMG’s report outlines five initial steps CEOs can take today:
- Conduct a comprehensive risk assessment
- Stay informed and monitor geopolitical developments
- Diversify supply chains
- Enhance operational resilience
- Foster strong stakeholder relationships.
KPMG has also developed a heat map looking at the impact of the top risks on individual key sectors. The analysis reveals the world’s energy and natural resources industry is the most exposed to risks, driven especially by uncertainty in the Middle East and the increasing politicization of access to minerals and crucial resources. The infrastructure industry and financial services are second and third, with both facing threats from AI governance gaps and growing economic headwinds.
KPMG’s analysis also revealed that the energy and natural resources sector recorded the lowest Financial Performance Index (FPI) score amongst all sectors. KPMG FPI is a measure of financial health based on data from over 40,000 companies globally. A lower score suggests underperformance and potential financial instability within the sector. This underperformance highlights the urgent need for companies within this sector to reassess their strategies, manage risks effectively, and adapt to changing market conditions to improve their financial health.
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