Interconnected risks and uncertainties on the cards for 2024

As the year progresses, the risk environment will be characterised by a number of evolving and often interconnected threats. From the risks associated with an increased use of Artificial Intelligence (AI) to the pressing need to combat climate change, companies face a dynamic risk picture.

Companies are very aware that AI brings with it many opportunities to improve processes, and they will be mindful of the risk of wasting these opportunities through late adoption. The need to balance risk and opportunity will be top of the agenda for many firms.

Evolving EU regulations, such as the Digital Services Act and the Digital Markets Act, impose new operational and compliance risks, especially for technology and digital service providers. Meanwhile, the new EU AI Act promises safe and ethical use, however, is likely to create approach changes in the technology and financial services sectors.

The use of generative AI is now widespread and its adoption only looks set to increase. This not only opens companies up to the risk of malpractice exposures, it also poses a potential societal risk if workers perceive their jobs to be under threat, for example. This heightens a risk of discontent and social unrest that is already being fuelled by the continuing cost-of-living crisis in Europe and other parts of the world.

Also, the cost-of-living crisis will continue to be felt in the pockets of people in Europe and overseas. We have seen an increase in strike action and protests, most notably in 2023, and the possibility of civil unrest will persist as we head into 2024.

Geopolitical and economic shocks

A looming US election adds to the already tense geopolitical environment in 2024, raising the possibility that relations between the world’s two economic superpowers - the United States and China - could worsen further. The US is not alone in facing an election year however, with 40 national elections in 2024, representing 41% of the world’s population and 42% of global GDP (Gross Domestic Product), according to Bloomberg Economics. And as the conflict in Ukraine sadly enters its third year and the tragic events in the Middle East continue to unfold, the political and economic aftershocks will be felt across the globe.

As well as the societal effects of unrest, geopolitical events will continue to exert an influence on global as well as national economics. The threat of Russian gas supplies to Europe being cut off poses the risk of elevated inflation lingering for longer. At a time when many might have hoped to see some greenshoots of recovery, a rising gas price, if coupled with elevated wage growth, would likely lead to a period of prolonged stagflation – above-average inflation set against little or low economic growth in real terms. While just a risk and not a certainty, this will add to concerns that the cost-of-living crisis will persist throughout 2024.

And while price shocks associated with geopolitical events have perhaps most directly been felt in the oil and gas prices, this has a ‘second order’ effect of filtering through to prices for many products, likely resulting in supply-chain pinch-points for many goods and services.

Companies and risk professionals will continue to closely monitor supply chain risk in 2024, seeking alternative sources, building dual supply-chains, and testing contingency plans.

Above all of that, the aftereffects of Brexit continue to resonate, presenting challenges in trade, regulatory compliance, and financial markets, particularly for businesses operating both within and outside the EU.

Climate change and environmental degradation

Against the backdrop of a fragile geopolitical environment, the focus from stakeholders and regulators on the environmental and climate strategies and performance of companies will continue in 2024.

Over the course of 2023 we have seen an increasing number of cases brought worldwide, holding companies to account for so-called greenwashing - whereby companies are accused of making false or misleading statements about their environmental credentials - or for inaction in combating climate change.

The European Union has made clear that it will focus on enhancing the ability for consumer groups to hold companies to account for greenwashing or failing to act on climate change. And we can expect an uptick in the rate of litigation in this area in 2024. Therefore, environmental risks will be ever-present, with the EU's ambitious Green Deal and carbon neutrality goals necessitating a rapid shift in business practices, impacting industries ranging from energy to manufacturing.

One of the effects of climate change - increasingly erratic and adverse weather patterns - will continue to be exacerbated by pollution and a loss of biodiversity. As well as the environmental damage caused by these events, there’s increased potential for legal action and reputational harm if companies are deemed to be contributing to the problem.

In addition, the risks posed by hazardous chemicals and small particles in the environment, and water supplies in particular, will be another area of focus in 2024. Endocrine disruptors - chemicals that may interfere with the hormonal systems of humans and other animals - have been found in packaging for food and beverage products and cosmetics, for example, as well as pesticides, toys and flame retardant substances. The risks to human health caused by microplastics, nanoparticles and so-called ‘forever chemicals’ - or per-and polyfluoralkyl substances (PFAS) - will remain an area of focus for regulators and consumer groups in 2024.

A year of flux

Europe-specific risks demand a strategic and localised approach to risk management, with businesses needing to navigate a complex web of regulatory, economic, and environmental factors to maintain resilience and competitiveness.

These risks, alongside many others that companies will face on an individual, industry or national level, may vary in magnitude over the course of 2024. But as companies seek to grapple with a tense geopolitical environment, economic stressors and the need to tackle climate change, we can expect an increased need for strategic risk management and dynamic discussions around risk assessment, management and transfer with companies operating in all sectors and of all sizes.