A new research report from the Chartered Institute of Internal Auditors says that businesses are facing a developing poly-crisis: a series of high-impact risk events which occur simultaneously and exacerbate a multitude of interconnected risks.
Threat areas which will build into a future poly-crisis are ongoing economic uncertainty, the cost-of-living crisis, the Ukraine crisis and growing geopolitical turmoil, labour shortages, along with extreme weather events fuelled by the climate crisis.
The above are amongst the findings in the Chartered Institute of Internal Auditors’ annual Risk in Focus report, which was produced in partnership with 15 European Institutes of Internal Auditors. Risk in Focus 2024 is the result of a survey of over 700 chief internal auditors across Europe on the risks their businesses are expecting to face in the year ahead.
The report calls on boards to collaborate with internal auditors to navigate the poly-crisis by ‘having an unwavering focus on organizational resilience’ and ‘working together to respond rapidly to the myriad of immediate and fast-moving strategic risks businesses now face’.
Other key survey findings include:
- As organizations continue to grapple with an increasingly weaponised cyber attack landscape cyber security is the biggest persistent threat. 84% of respondents stated that cyber security is the number one risk. This is no surprise given recent high-profile cyber incidents.
- Off the back of the pandemic, organizations are continuing to face a human resources crisis, with 58% stating that ‘human capital, diversity, and talent management’ is the second biggest current risk. This reflects ongoing labour shortages in key sectors of the economy, as businesses struggle to fill vacant positions and retain talent.
- Set against a fragile economic backdrop of stubbornly high inflation and rising interest rates, coupled with the wr in Ukraine and rising geopolitical tensions, 43% cite macroeconomic and geopolitical uncertainty as a top risk.
- As high-speed technological developments like artificial intelligence pose a new and emerging potential threat, a third (33%) cite digital disruption and new technology as a top risk, although this is forecast to rise to 50% in three years’ time.
- With two of the hottest European summers on record and climate-related disasters happening around the world, almost a third (31%) cite climate change as a top risk. However, this is set to rise further still to over half (53%) in just three years’ time.
Risk in Focus 2024 makes several recommendations to boards and their internal audit functions on how to navigate the poly-crisis:
- Boards and their internal auditors should work together to build greater organizational resilience. This should include testing risk and mitigation strategies using scenario run-through exercises to identify inter-related risks that could otherwise remain hidden.
- Boards should ensure their internal auditors evaluate the organization’s cyber security awareness and training programmes and assess whether those are effective.
- Boards should ask their internal auditors whether the assumptions made on financial stress testing align with reality and whether economic scenario planning and simulation exercises are awake to emerging risks.
- Boards should harness the skills of their internal auditors to assess whether the organization’s values and objectives align and are clearly communicated within and outside the business to engage with potential and existing talent.
- Boards should ask their internal auditors to assess whether environmental sustainability goals are aligned with business strategy and have clear metrics.