Risk in Focus 2024 is a Europe-wide annual research report analysing the top risks faced by businesses. This year’s research reveals a poly-crisis as a series of high-impact risk events occur simultaneously and exacerbate a multitude of interconnected risks. A key message from the report is that now more than ever internal audit and risk management professionals must work collaboratively to tackle the poly-crisis of risk impacting organisations across Europe and beyond. You can read the full report here.
In these unique and challenging times, the risk landscape is becoming increasingly complex to navigate. Given the multitude of interconnected risks, including ongoing economic uncertainty, the cost-of-living crisis, the Ukraine crisis, the conflict in the Middle East and growing geopolitical tensions, labour shortages, and extreme weather events fuelled by the climate crisis, it has never been more important for internal audit and risk management to work together.
Risk in Focus 2024 is the Chartered Institute of Internal Auditors’ annual flagship research report produced in partnership with 16 European Institutes of Internal Auditors spanning 17 countries. This year’s report is the result of a survey of over seven hundred Chief Audit Executives on the risks their businesses are expecting to face in the year ahead.
The findings from the research reveal that organisations continue to face an increasingly weaponised cyber-attack landscape with cybersecurity being voted the biggest threat. 84% of respondents identified cybersecurity as the number one risk for the sixth year in a row. It is imperative that risk management and internal audit don’t work in silos and work collaboratively to ensure the correct measures are put in place to combat cyber security threats.
The report revealed human capital, diversity, and talent management as the second biggest risk organisations are facing with six in ten Chief Audit Executives indicating it was a top risk. Off the back of the pandemic, organisations are continuing to face a human resources crisis. This reflects ongoing labour shortages in key sectors of the economy, as businesses struggle to fill vacant positions and retain talent. Risk management and internal audit should work together to ensure organisational policies are competitive and work-life balance fits the needs of staff in key business areas.
Macroeconomic and geopolitical uncertainty ranked as the third biggest risk jointly with changes in laws and regulations. Set against a fragile economic backdrop of stubbornly high inflation and rising interest rates, coupled with the war in Ukraine, and rising geopolitical tensions, 43% of respondents ranked it as one of the biggest risks. Internal audit and risk management should work together to build organisational resilience to weather geopolitical and macroeconomic shocks. This should include testing risk and mitigation strategies using scenario run-through exercises to identify geopolitical and macroeconomic risks on the horizon. They should collaborate on financial stress testing to ensure that this aligns with reality and whether economic scenario planning and simulation exercises are awake to emerging risks.
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. The research shows that this risk is forecast to grow exponentially in the next few years with it expected to be the third biggest risk in three years’ time when 51% say it will be one of the biggest risks. Internal audit and risk management should work together to assess whether environmental sustainability goals are aligned with business strategy, have clear metrics and that reporting is compliant with new ESG-related regulatory measures.
Given the ensuring poly-crisis organisations now face, the risk of working in silos could result in organisations not being properly prepared for the threats they face. It has never been more important for internal audit and risk management to work in collaboration and ensure a joined-up and cohesive approach to the identification, management, and mitigation of risk. Having the second and third lines working more closely together in assessing the risks and recommending effective measures to combat them will help to ensure greater resilience and support organisations in successfully navigating the more risky, uncertain, and volatile times we face.
Mamun Madaser is Senior Research Executive at the Chartered Institute of Internal Auditors and was the Project Lead for Risk in Focus 2024