Risky business: understanding and mitigating today’s most common Corporate and Financial risks to future-proof your business

As businesses across every sector grow in line with 21st century developments, so too does the list of risks they face. From ESG risks to health regulations, market, credit, and potential supply chain issues, navigating any of these can be a ‘risky business’ (pardon the pun).

Want to know how to create an effective strategy for managing risk? Here, we’ll explore the kinds of risks you need to prepare for. Get ready to future-proof yourself against today’s most common business complexities.

ESG Risks 

Are you investing in the management of Environmental, Social, and Governance (ESG) risks? Not just a buzzword, any business in any industry can be affected by ESG risks, and having a framework in place can help you to identify, analyse and prioritise potential issues before they affect operations and/or profit.

Here’s our deep dive into each:

Economic factors

Looking firstly at economic risks. They’re vast and varied and a priority for businesses in every industry.

The past few years alone have thrown Brexit, the Covid-19 pandemic, the Ukrainian war, and ever-increasing interest rates into the mix, causing businesses to re-evaluate their strategies to manage the knock-on effects.

Covid alone hit the world’s economy with the “biggest shock since the second world war.” The Economist reported a slump in consumer spending, and a labour-market implosion of nearly 500 million full-time jobs disappeared overnight. The pandemic resulted in a severe recession, and of course, an overhaul in the way people work and businesses operate.

The rise in remote and hybrid working is just one example: as of 2023, 12.7% of full-time employees in the US are now home-based and 28.2% work a hybrid model, with similar trends in the UK and Europe. And these kinds of market-labour shifts are something that employers need to be aware of.

Technology also plays a part. The upward trend of businesses moving to automated processes can reduce demand for certain types of jobs and skillsets, resulting in increased costs associated with retraining existing employees.

And let’s not forget rising interest rates and the direct impact they have on businesses. As the cost of capital increases, it can make financing more difficult, leading to cash flow problems and even bankruptcy. It’s crucial to keep a constant eye on inflation levels – after all, they can impact your profit, especially if you’re not increasing your prices in line with the rate of inflation.

Similarly, there’s currency devaluation. And if a country's currency weakens against other currencies, you’ll experience increased costs for imported goods and services. Do you work with suppliers and/or customers across the globe? Be prepared for any higher operational costs and reduced profits caused by currency devaluation. Trade wars and tariffs are further important considerations for businesses operating across borders.

But the fact is there’s always going to be uncertainty around economic growth or decline, either of which could significantly impact your business operations. There’s little we can do about it.

Could you adjust quickly to changing circumstances, all whilst staying focussed on your long-term objectives? Make sure you’re prepared for any economic eventuality. That’s the key to remaining competitive in an ever-changing environment.

Additionally, you should consider investing in digital infrastructure upgrades (e.g., cloud computing) to remain competitive and protect against potential data breaches and other security threats that could arise from outdated systems.

Social factors

The digital age has brought with it a list of social risks that can’t be overlooked.

For starters, in a world controlled by consumer power and expectations, companies’ reputations are now shaped by social media. People are influenced by what they see on social media, hear on TV. And let’s not forget online reviews, or complaints in forums that are viewed by millions in just minutes! Alongside that, organisations are also forced to adjust to new and ever-evolving customer demographics and preferences – think online shopping versus brick-and-mortar stores and competition from new entrants into the market (Uber, Netflix, etc.)

But there’s government policies and regulations to think about, too. They can have a huge impact on your business operations: think environmental standards or other laws that can demand changes to your processes. You have no choice but to adhere or face hefty fines, public enquiries, or even imprisonment!

And last but definitely not least, there’s artificial intelligence (AI), machine learning (ML), and blockchain technologies which are transforming just about every industry. Want to stay ahead? You’ve got to familiarise yourself with, and embrace, these advances to keep up with the competition.

Social risks have never been a bigger consideration for companies as they are today. And to remain successful, understanding these social risks is crucial. Our advice? Be proactive rather than reactive. Staying ahead of the curve will protect you against potential losses due to changing consumer demands or technological advances.

Continuously monitor customer sentiment across different platforms to quickly identify any trends or threats; and stay informed about relevant government policies and regulations while adapting products or services for the new global market. By doing so, you’ll ensure compliance while giving your competitors a run for their money.

Governance factors

In the 21st century, businesses in different sectors face a wide variety of governance risks. These include changes in regulations that could affect operations or non-compliance with laws and legislations. They could also include transparency and disclosure of information, protection against fraud and mismanagement, and oversight and monitoring of activities. 

Let’s look closer at the key area of risk that changes in laws and regulations. Governments may implement new rules at any time or modify existing ones to regulate business activities or protect citizens from harm. One example is IR35, that despite a few years of advanced warning still left some UK businesses panicking as the deadline loomed. The new GDPR requirements were something that every business in the EU was heavily affected by too. And Basel II is an example of a global banking regulation that got many banks worked up.

To say it’s important to be aware of these kinds of changes, is a bit of an understatement. Ultimately, failure to comply with government policies isn’t going to end well – you’re looking at fines, court action, and a whole host of possible negative consequences. And the same applies for industry standards such as ISO certifications for quality management systems or anti-corruption compliance programs. Being labelled as a risky company to work with does no favours when it comes to attracting candidates either. In short, make sure you’re always on top of the requirements.

It also key to think about the transparency and disclosure of your information. Companies are increasingly expected to be open about their operations, finances, policies, procedures, practices, and so on. This can include providing accurate financial statements in accordance with accounting standards as well as timely disclosures of material events that could influence the performance of the company. Transparency’s more common today because it can reduce the risk of fraud or mismanagement and provides investors with useful insights into the company’s operations. Well worth considering in your own operations if you haven’t done already!

And have you also considered systems and processes to protect against fraud or other forms of mismanagement? This includes internal controls over financial reporting; independent external audits; risk management systems; security protocols; whistleblowing mechanisms; periodic internal audits; measures to prevent bribery or corruption; clear conflict-of-interest policies; effective corporate governance structures including board oversight processes for strategic decisions made at senior levels; anti-money laundering procedures…and breathe!

Yes, it’s a lot to think about, but more and more vital to have policies in place for each of these to mitigate risk. Particularly when it comes to internal and external auditing which will help you to identify any potential problems before they become major issues that could affect you in the long term. If you’re regulated (FCA/PRA/CSSF, etc.) you probably don’t have a choice but to be more proactive. Whether a financial or non-financial services business, planning and safeguarding are essential in managing governance risk.

Market, credit, and supply chain risks

Next up, let’s look at the potential dangers that can arise from market, credit, and supply-chain operations.

Although market, credit, and supply chain risks are a consideration for any organisation, these are particularly important for financial services businesses. Banks must constantly contend with market, credit, liquidity, operational, reputational risk, and more. And insurers must be aware of their exposure to catastrophic events (e.g., natural disasters) while also navigating regulation changes. Asset managers must stay up to date of volatile markets and potential frauds while providing sound guidance for their clients’ investments.

One of the biggest risks in this area is fluctuations! Nowadays, demand for services and products is expected to peak and trough - commodities have become increasingly volatile. The result? Any disruptions in supply chains can be worryingly expensive! But fluctuations are common in exchange and interest rates too and can cause systematic issues if investors become unwilling to take on debt.

Unfortunately, none of us are strangers to recession and the sudden effects it can have on reducing demand for certain products or services – significantly influencing a company’s bottom line. And that’s why it’s critical for organisations to consistently monitor industry trends and anticipate any shifts that might occur due to changes in market conditions.

Other market-related risks to consider? Don’t forget to evaluate counterparty risks. If you’re engaging with other entities (suppliers, partners, etc.), what would happen if one of more parties failed to fulfil their contractual obligations? While there’s normally little you can do to prevent such events, having a risk management procedure on paper will help you to ride the waves should the worst happen.

Health regulations risks

Health and safety: when it comes to the wellbeing of those around you, no 21st century business (financial or non-financial) is excluded!

Health and safety’s no longer a consideration for healthcare providers alone. And, yes, if you’re working in healthcare, the catalogue of considerations is greater…from increasingly higher standards of patient care and ethical practices to the scrutiny and protection of clinical data, fraud prevention and detection. But in today’s culture of ‘where there’s blame, there’s a claim’, it’s essential for businesses to do all they can to ensure the health and safety of their staff and customers. Claims aside, there are ever-increasing ethical motivations for employers to take accountability and interest in the welfare of their staff too.

Why? Well, let’s look at the legal reasons first. In 2021/2022 UK headline HSE statistics included:

• 123 workers killed at work
• 565,000 non-fatal injuries occurred at work
• 1.8 million workers suffered from work-related ill-health.

Incidents like this will undoubtedly damage your bank balance and your reputation, as discovered by many organisations during 2022 who were found guilty of health and safety breaches, including:

• Northern Gas Networks Limited: £5m + £91.5k costs
• Dyson Technology Limited: £1.2m + £11.5k costs
• Siemens Energy Limited: £900k + £6.3k costs
• Hermes Parcelnet Limited: £850k
• Nestle UK Limited: £800k + £7.7k costs

But the costly side of contraventions aside, what about the other benefits of a healthy, safe environment for employees and/or customers?

There’s your online reputation to consider again. Invite a customer or colleague into a dangerous environment and that expansive social media network will know about their near miss or accident in minutes! But operate a safe, welcoming environment, you’ll be known for caring, prioritising people and going above and beyond.

And when it comes to your workforce, happy and motivated teams are known to be more productive and engaged. According to a survey conducted by Harvard Business Review Analytic Services, 94% of business leaders agree it makes attracting talent easier. And 87% believe it gives their organisation a competitive advantage. Yet only 19% of companies have a wellbeing strategy in place.

So, what are the top considerations when it comes to health regulations? Start with the legalities – think cyber security, data protection (such as GDPR compliance), worker regulations, background and qualification checks (including any technical certifications required), etc. Ensure you’re providing a safe, comfortable working (and customer environment, if applicable) environment that’s free of hazards and risks.

But also, don’t overlook additional HSE initiatives that can help you attract and retain staff for longer. Onsite medicals and/or medical insurance, mental health awareness training and mental health helplines…some companies are even implementing additional reboot/rest days to ensure the wellbeing of their staff. Lunch time yoga classes, walking groups, acupuncture and/or massage sessions are all becoming more common in some workplaces.

Creating a HSE policy and reviewing it at regular intervals will help you to stay on top of your HSE responsibilities and requirements. After all, there are so many health and safety risks nowadays and organisations not making them a top priority are leaving themselves wide open to the possibility of fines, prosecutions, and legal proceedings - not to mention the weight of being responsible for illness, accident, injury, or even death.

Remember there are lots of things you can do to reduce your exposure to health and safety risks, though. From complying with laws and keeping updated with regulations and policies, to simply instilling a culture of care and consideration into your business, you’ll increase your likelihood of avoiding incidents.

Risks can be difficult to manage, but they’re essential for any business operating in any sector to succeed. Whether you’re in Financial Services or not, it’s important to evaluate how your operations could be affected by any of the ESG, HSE, and market risks included above - plus, prioritise your investment in risk management.

Apollo Solutions can help you build a robust team of Audit, Risk and Compliance professionals who can take you from strength to strength. Let’s discuss your needs today.