Report urges UAE business leaders to mitigate against business risks by integrating ESG and cybersecurity frameworks into corporate strategy
The findings come from the World Economic Forum’s Global Risks Report 2023, which interviewed 12,361 executives from 124 countries
Dubai: According to new research published today by the World Economic Forum in partnership with Marsh McLennan, the cost-of-living-crisis, sustained high inflation and severe commodity price shocks have been cited as the three greatest short-term critical threats to business continuity and economic growth in the UAE by a national panel of leading executives.
The report indicates that businesses in the UAE face very real risks that stem from a prolonged cost of living crisis that include spiraling supply chain costs, soaring wages and a collapse in consumer spending power. Businesses also fear the impacts of sustained high inflation and a fall in public sector investment, alongside shortfalls in public goods and human capital. Severe commodity price shocks – ranked as the third greatest risk to UAE businesses – would serve to further weaken global supply chains and inflation on goods and services.
The report suggests that even though the window for action on the most serious long-term threats to businesses is closing rapidly, concerted risk mitigation can help companies to retain market share, protect their reputations and take advantage of the region’s economic recovery.
In addition to interviews with over 12,000 executives, the report draws on the views of over 1,200 global risk experts, policy-makers, and industry leaders. Across three timeframes, it paints a picture of the global risks landscape that is both new and eerily familiar, as the world faces many pre-existing risks that previously appeared to be receding.
The study also shows that the COVID-19 pandemic and European conflict have brought the geopolitical contestation of strategic resources, geoeconomic confrontation and failure of cybersecurity measures to the fore for leading UAE business leaders. These create follow-on risks such as the risk of conflict, recession; growing debt distress; a continued cost of living crisis; polarized societies enabled by disinformation and misinformation; a hiatus on rapid climate action; and zero-sum geo-economic warfare.
Commenting on the findings, Brad Simpson, Risk Management Leader MENA at Marsh , said: “For the majority of UAE executives interviewed, the ‘new normal’ that followed the COVID-19 pandemic brings a lingering fear of economic collapse as a result of a convergence of inflationary, debt and supply chain risks. The Global Risks Report 2023 also clearly shows that the pandemic has deeply impacted short-term risk concerns related to asset bubbles and resource-related geopolitical instability. These factors – alongside cybersecurity fears and climate action failure, paint a picture of unease and uncertainty across the national economy.
Hande Bilgisu, Risk Advisory Leader - MEA at Marsh said, “At a time when organizations in the UAE should be stepping up resilience efforts, economic headwinds may constrain their ability to do so. Faced with the increasingly challenging geo-economic conditions, companies should focus not just on navigating near-term concerns but also on developing strategies that will position them well for longer-term risks and structural change.”
FIVE TAKEAWAYS FOR BUSINESSES
Providing business leaders with a roadmap to resilience, the report urges the executive committees of UAE businesses to adopt a range of mitigation measures, including
1. Greater awareness of the impact that geopolitical frictions may have on economics, market advantages and rising costs.
Shifting energy prices, soaring inflation and societal polarization all threaten business continuity and market development – particularly for firms with multi-market exposure. Greater investments in fiduciary diligence and risk diversification measures will enhance business’ resilience to market turbulence.
2. Protect against reputational and legal risks by incorporating ESG and climate frameworks
Growing civic awareness for business ethics have created new benchmarks for good climate governance—both in the private and public sector. Leveraging frameworks such as the TNFD (Taskforce on Nature-related Financial Disclosures) and TCFD (Taskforce on Climate-related Financial Disclosures), as well as keeping pace with fast-shifting environmental laws will be imperative for businesses to avoid reputational and liability risks, and a loss of consumer and investor trust.
3. Limit reputational, operational, and legal risks by preparing for data breaches and cyber attacks
The costs of cyberattacks are on the rise and, with greater civic awareness of privacy imperatives, businesses that suffer attacks are highly exposed to reputational, regulatory, and legal consequences of breaches. Greater adherence to current cyber regulations and investments in data security protocols are prudent risk mitigation measures.
4. Mitigate workforce risks in light of inflationary pressures on healthcare and basic needs
Record levels of inflation have sparked demand for higher wages, further increasing cost pressures on businesses. Wage hikes are no longer sufficient for retaining talent in the wake of the pandemic, as workers express preferences for greater non-pay benefits and flexible work arrangements. Businesses must invest in innovative ways of working to continue to attract top talent.
5. Invest in holistic resilience frameworks to anticipate future crises and improve capacity to deal with shocks
Crises do not emerge in siloes, and often exacerbate one another to produce greater uncertainty. It is imperative that businesses invest in well-rounded risk mitigation and resilience frameworks that allow them to understand how threats compound one another, anticipate turbulence, and respond efficiently to minimize disruption.
The Global Risks Report is a pillar of the Forum’s Global Risks Initiative which works to promote a greater shared understanding of short-, mid-, and long-term global risks to enable learning on risk preparedness and resilience.
Saadia Zahidi, Managing Director, World Economic Forum said, “The short-term risk landscape is dominated by energy, food, debt, and disasters. Those that are already the most vulnerable are suffering – and in the face of multiple crises, those who qualify as vulnerable are rapidly expanding, in rich and poor countries alike. Climate and human development must be at the core of concerns of global leaders, even as they battle current crises. Cooperation is the only way forward.”
The report also explores ‘Resource Rivalry,’ a potential cluster of interrelated environmental, geopolitical, and socioeconomic risks relating to the supply of and demand for natural resources, including food, water, and energy.
