Brian Sims
Editor

Control Risks forecasts “deep set of risks” for businesses in 2023

BUSINESSES WILL face a historically broad and deep set of risks in 2023, posing interconnected and existential threats across geographies and sectors. That’s according to specialist risk consultancy Control Risks.

Launching its annual Risk Map forecast featuring the foremost for business, Control Risks has pointed to a combination of fractious geopolitics, armed conflict, disrupted energy systems, economic strife and disarray in digital networks during the coming year, with cyber risk at the top of the agenda.

In 2023, we can expect the emergence of a fundamental breakdown of global networks into distinct regional or even national architectures, caused by the ‘weaponisation’ of cyber space and a clash of national interests. The ambition of operating a single, global network will be significantly challenged.

Enabled by an expanded attack surface and a significant increase in automation across the entire spectrum of cyber threats, the cyber arms race will accelerate in 2023. In parallel to this ‘weaponisation’, nation states are looking to exert more control over what some have already defined as their national cyber space. Network and system resilience will be tested like never before.

Fragmenting world order

Nick Allan, CEO at Control Risks CEO, asserted: “In the fragmenting world order, the weapons of choice for many states will be found in the cyber sphere. This will either be through the spread of disinformation, aided by improving deepfake technology, or through cyber attacks or both.”

As a business operating in both the geopolitical and cyber arenas, Control Risks can see very clearly the direct correlation between geopolitical tensions and cyber aggression. “An element of uncertainty and fear provides a level of state-versus-state deterrence,” observed Allan, “but corporates find themselves as easier targets for proxy and real wars. This is made worse by the transfer of military-grade cyber capabilities to criminal or radicalised groups.”

Further, Allan explained: “2023 will see more geopolitical and economic volatility accompanied by operational challenges in energy and digital networks. The increasingly apparent effects of a changing climate will add additional stresses and strains. Resilience, insight and courage will be the watchwords for business in the year ahead.”

Supporting the top risks for 2023 is a new map, the Global Risk Forecast. This shows an holistic business risk rating for the countries of the world that draws on a selection of risks. The composite score includes Control Risks’ political, security, operational, regulatory, cyber and integrity risks and encompasses a range of environmental, social and corporate governance-related risks.

Each rating reflects Control Risks’ outlook for overall risks to business to the end of 2023, taking into account known or anticipated trends and developments that could impact the business environment.

Operational risk

Operational risk is going to be all about managing while adapting and surviving the energy disruption. Energy has returned as the main driver of global disruption and this will be a permanent and systemic change.

There will be no return to a pre-2022 stability and businesses should plan not only to survive the short-term price and supply shock, but also how to thrive in a new and comprehensively re-wired global energy system.

Companies will need a strategic approach to three key drivers of disruption that will shape business operations in 2023 and beyond: the ‘weaponisation’ of energy, technological advances accelerating the energy transition and unavoidable decarbonisation targets.

Control Risks’ top regulatory risk for the year is the turbulence caused by Government responses to tougher economic conditions and fiscal fragility. Governments will be targeting revenue and striving to steady state finances. Wherever they turn, the corporate world will feel the heat one way or another. Whether through windfall taxes, trade restrictions or protectionist supply chain mandates, corporates will be targeted when Governments need to shore up their finances and bolster populist credentials.

In some cases, regulatory changes will constitute a short-term pain, but Governments may also seize the moment to make structural and long-term changes to taxation, investment rules and trading restrictions.

Geopolitical risk

The US-China relationship is the greatest geopolitical risk for businesses in 2023. Armed conflict between the US and China remains very unlikely in 2023, but competition and confrontation are moving from the trade and technology realms into the military domain.

Next year, companies must be alert to the prospect of an accident or miscalculation involving US and Chinese military vessels operating in Asia. Businesses must monitor efforts to decouple critical supply chains. Rising bilateral tensions will not affect all companies equally. Strategic and high-tech sectors in both countries will face rising political risks. Many in less sensitive industries will continue to experience ‘business as usual’ conditions.

Security risk

In 2023, war – or the prospect of it on several timelines – and ‘triggers’ should be high on everyone’s risk register. There will be continuing risk of escalation and overspill from the Ukraine-Russia conflict. The complex commercial, operational, reputational, supply chain and sanctions risks from this war means many are considering what these would look like in the event of a conflict in East Asia.

The likelihood of such an event in 2023 is very low, but certainly significant enough to warrant the planning that many firms are engaged in at present. Beyond these spheres, proxy conflicts and perennial flashpoints could disrupt trade and energy security.

*The 2023 Risk Map is live now, featuring multimedia content on the top risks, while the new interactive Global Risk Forecast map contains forecasts for specific countries and regions as well as a CEO’s view from Nick Allen. Access www.controlrisks.com/riskmap

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