- Divergence on AI governance, geopolitical vulnerability and trade policy restrictions threatening long-term sustainable growth for many organizations
- Energy and natural resources sector ‘most exposed’ industry group in 2024
Businesses operating across borders are facing slowing growth and an increasing battle for 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. Organizations should be prepared to navigate these trade policy restrictions and explore alternative strategies to mitigate potential disruptions.
- 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. To mitigate the risks associated with vulnerability, organizations must prioritize operational resilience. This involves implementing proactive risk management practices, conducting scenario planning, diversifying supply chains and strengthening cybersecurity measures.
- 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. Ethical and responsible AI deployment is crucial to maintain trust among stakeholders. Organizations should prioritize transparency, accountability, and fairness in their AI systems to mitigate potential risks and ensure its responsible integration into their operations.
KPMG’s team of geopolitical experts and global sector heads have 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.
In KPMG's analysis, the Energy and Natural Resources sector also recorded the lowest Financial Performance Index (FPI) score amongst all sectors. The FPI, a measure of financial health, is 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.
