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Economy, Cyber Security, and Environmental Issues Cited as Top Risks for Businesses in 2024
Kiwi businesses must be prepared for an economic slowdown, cyber-security threats, and environmental issues this year.
According to the New Zealand Risk Landscape Report by accounting firm BDO, there are three major global risk areas identified for businesses navigating the nation’s landscape this year. They include:
- Cyber attacks and computer crime,
- Economic slowdown or a slow recovery, and
- Environmental risk
BDO claims that as geopolitical and economic events continue to impact businesses, there is a “more complex risk landscape for businesses to navigate.” More importantly, companies should also prepare for cascading risks, a situation whereby one risk may trigger another in a domino effect.
Managing cascading risk
In its report, BDO highlights that businesses can “no longer afford” to focus on a singular risk in isolation. Instead, they should adopt a broad view of their overall risks and assess how multiple events and threats can trigger each other.
“The big challenge ahead for New Zealand business leaders, who in many instances are still recovering from the events of recent years, is to be prepared for not only immediate risks, but also the cascade of risks that can be triggered from those events,”
“In 2024, a broad and strategic risk management approach that links risk management to business objectives may be more fit for purpose than a narrow prevention-and-compliance approach." said Tarunesh Singh, BDO Risk Advisory National Leader.
The impacts of COVID-19 are an example of cascading risk in action, where lockdowns and the flood of subsequent migration following border openings have affected businesses in various scenarios.
“As a business leader, the most important thing you can do to navigate the cascading risk landscape is to understand your own risk profile and what you can do now to reduce your exposure to risks. However, you don’t know what you don’t know, and best intentions can’t always defend against every combination of risks.”
Speaking about the economy, Singh claimed that businesses should consider not only the apparent economic slowdown but also the results of any decisions made to mitigate economic risk.
"If you think about an economic slowdown, that puts significant financial strain on most organisations. That could then in itself trigger a need for - for example - a slimming down of the workforce," Singh said.
"Workforce cuts ... (are) a solution to the economic risk. However, it then in itself brings on another number of risks."
Of economic risks, online security, and the environment
Ongoing inflation and higher interest rates were cited as a big risk for businesses in BDO’s report. Additionally, higher migration levels and the geo-political instability stemming from the Israel-Hamas and Russia-Ukraine warfare will continue to impact trade agreements affecting Kiwi businesses.
On the side of climate and the environment, it was reported that 44% of executives believe climate change will be a risk to their business. Unprecedented weather events like Cyclone Gabrielle and the Auckland floods have resulted in billions of dollars in losses in the country, and forecasts show that these weather events are expected to be more severe in the future.
Moving to cyber-security risks, BDO claims that increased accessibility to emerging technologies like artificial intelligence will potentially escalate cyber-attacks and fraud. Businesses that use AI in their operations should be more vigilant of its risk, as cybercriminals can use AI to steal or manipulate data. In the age where many Kiwis are working from home, this threat is a looming one this year.
How businesses can stay ahead of risks
Businesses must consider reducing these risks while adopting cost-effective measures that will not hurt their bottom line. Singh acknowledged that mitigating these risks while being financially sustainable is "a difficult problem" for many companies.
"Unfortunately, I don't think there's one solution that's going to fit for everyone here," he said.
According to Singh, market and business understanding is crucial to adopting a tailored approach to risk management.
"It's about identifying [what material risk factors are] facing your organisation today and then taking a stance based on your own risk appetite, of where you are happy to sit in respect of each of those risks and then taking proportional responses."
While no business owner likes to think of risk, it's imperative to stay proactive and minimise the risk impacts. By adopting a mindset of ‘when’ not ‘if’, companies can effectively address the issue quickly and take control.
Bonded NZ helps business owners remain efficient in economic uncertainties through comprehensive and tailored business insurance. Whether it's public liability or professional indemnity insurance, our cost-effective options help them secure their business at every angle.
For more information about our services, contact our team today.