10 Important Things to Know About Emerging Risks

What is Emerging Risk

From Enterprise Risk Management perspective, Emerging Risks are potential threats or opportunities that are not fully understood or identified, but expected to have a significant impact on enterprise.

These risks pose a significant challenge to organizations across all industries and can evolve from any dimensions like new technologies, shifts in global markets, sudden changes in regulations, and a host of other factors. It is essential for organizations to have a robust Enterprise Risk Management (ERM) program in place to identify and effectively manage these emerging risks.

International Organisation for Standardisation (ISO) has been developing “ISO 31050 -Guidance for manageging Emerging Risk to enhence resilience”, which is expected to be published in April 2023.

8 Types of Emerging Risks

There are many different types or categories of emerging risks that organizations face. Here are 8 most common types of emerging risks:

1. Cybersecurity Risks: These risks include data breaches, cyber attacks, and ransomware, as well as the risk of theft or loss of sensitive information. For example, a data breach at a major retailer could result in the loss of sensitive customer information, leading to significant reputational damage and financial losses.
2. Environmental Risks: These risks include natural disasters, climate change, and the depletion of natural resources. For example, an oil spill or other environmental disaster could result in significant environmental damage, as well as financial losses for the responsible organization.
3. Political Risks: These risks include political instability, geopolitical tensions, and the rise of illegal government. For example, a major political crisis could result in the suspension of trade and investment, creating significant risks for organizations that operate in multiple countries.
4. Reputation Risks: These risks include the loss of brand reputation, due to a crisis, scandal, or negative publicity. For example, a company that engages in unethical business practices could suffer significant reputational damage, leading to a decline in customer loyalty and a decline in stock price. This may also arise from failure in stakeholder relationship management.
5. Supply Chain Risks: These risks include disruptions to the supply of goods and services, as well as exposure to political, economic, and environmental risks in foreign countries. For example, a natural disaster or political crisis in a major supplier country could result in significant supply chain disruptions, leading to financial losses and increased risk. 
6. Regulatory Risks: These risks include changes in regulations in any areas, including data privacy and environmental sustainability. For example, a change in regulations could result in increased compliance costs, as well as reputational and financial risks if an organization fails to comply.
7. Technological Risks: The biggest technological risk may emerge due to disruption for new technology which may obsolete the current investment. This risk may also emerge due to the adoption of untested technologies. For example, an organization that invests heavily in a new technology that proves to be unproven or unreliable could suffer significant financial losses.
8. Industry Risks: Changes in competition landscape due to competitors business strategy or sudden shift in customers behaviour may create significant threats or opportunities for an organisation. For example, a merger between two competitors could emerge with huge risk for an organisation.     

These are just a few examples of the types or categories of emerging risks that organizations face. It is important to understand that emerging risks can evolve quickly, making it critical for organizations to have a robust ERM program in place to effectively identify and manage these risks.

4 steps to manage Emerging Risks

Here are 4 steps to manage emerging risks under ERM process:

1. Risk Identification: The first step in effectively managing emerging risks is to identify them. Organizations should establish a process on how to identify emerging risks that includes ongoing monitoring and analysis of potential risks. This process should also involve stakeholder engagement, including employees, customers, and partners, to ensure that all potential risks are considered.
2. Risk Assessment: Once emerging risks have been identified, organizations should assess their potential impact and likelihood of occurrence. This assessment should include a comprehensive analysis of the potential financial, operational, and reputational impacts of the risk.
3. Risk Mitigation: Based on the results of the risk assessment, organizations should develop and implement risk mitigation strategies. These strategies may include the development of contingency plans, the implementation of security controls, and the establishment of insurance coverage.
4. Monitoring and Review: Organizations should continually monitor and review their ERM program to ensure that it is effective in managing emerging risks. This includes regular updates to the risk assessment process, ongoing monitoring of risk mitigation strategies, and regular reporting on the status of the ERM program.

Enterprise Risk Management requires a strong sponsorship from Management and Board to build the process in formulating strategy and to create a culture of risk awareness and prudent risk management approach within an organisation which can help particularly to manage emerging risks efficiently.

10 Important Things About Emerging Risks

#1 Emerging risks are constantly evolving

Emerging risks can arise from a variety of sources and can change quickly, making it critical for organizations to have a flexible and adaptable risk management approach.

#2 Emerging risks can come from unexpected sources

Emerging risks can come from a variety of sources, including new technologies, shifts in global markets, changes in regulations, and a host of other factors.

#3 Emerging risks can have significant impacts

Emerging risks can have a significant impact on an organization’s operations, finances, and reputation. It is important to assess the potential impact and likelihood of occurrence of emerging risks.

#4 Effective risk management is essential

Having a robust Enterprise Risk Management (ERM) program in place is essential for effectively managing emerging risks. This includes regular risk assessments, the development and implementation of risk mitigation strategies, and ongoing monitoring and review.

#5 Emerging risks require a proactive approach

Proactive risk management is essential for effectively managing emerging risks. This includes regularly monitoring for potential risks, conducting regular risk assessments, and developing and implementing risk mitigation strategies.

#6 Collaboration is key

Effective risk management requires collaboration between different departments, stakeholders, and partners. This includes stakeholder engagement and regular communication to ensure that all potential risks are considered and effectively managed.

#7 Emerging risks require a risk-informed decision-making approach

Organizations should adopt a risk-informed decision-making approach, considering the potential impact and likelihood of emerging risks when making strategic decisions.

#8 Emerging risks can have cascading effects

Emerging risks can have cascading effects, creating additional risks and challenges for an organization. It is important to consider these potential impacts when assessing and managing emerging risks.

#9 Emerging risks require a long-term perspective

Effective risk management requires a long-term perspective, considering the potential future impact of emerging risks and planning accordingly.

#10 Emerging risks require continuous monitoring

Continuous monitoring and review are critical for effectively managing emerging risks. This includes regular updates to the risk assessment process, ongoing monitoring of risk mitigation strategies, and regular reporting on the status of the ERM program.

Conclusion:

Emerging risks are an ongoing challenge for organizations, and it is essential to have a robust ERM program in place to manage them effectively. By understanding the different types of emerging risks, conducting ongoing risk assessments, developing and implementing risk mitigation strategies, and continually monitoring and reviewing the ERM program, organizations can better manage the risks they face.

Effective risk management is essential for ensuring the long-term success of organizations and can help them stay ahead of potential risks, allowing them to make informed decisions and effectively respond to new challenges as they arise.