High-quality risk disclosures are provided by 84% of companies and businesses are increasingly linking risks back to company strategy. This builds a more helpful picture of the challenges to achieving that strategy and the mitigations that management have in mind. Simon Lowe examines how risk reporting has shifted from a form of compliance to providing real insight into a company's resilience.
Looked at more closely, only 18% of companies with 2019 year-ends identified such risks whereas, with the benefit of hindsight, 53% of those with 2020 year-ends did so.
Categories of emerging and principal risks disclosed by companies (%)
Focus on managing the risks
Eighty-nine percent of companies say, in their annual reports, that they assess emerging risks. However, most focus on how they will identify what’s coming over the horizon, rather than the actual risks. Surprisingly, only 30% of companies indicated how they will mitigate emerging risks.
The primary risks for the FTSE 350 relate to climate, pandemic and macro-economic driven events, but what is the message when it comes to individual industries?
Top three emerging risks by industry (%)
With more companies reporting on principal risks than ever before, it is a modern-day governance success story. However, business leaders need to be mindful of complacency. Go back and really challenge your processes to ensure your horizon scanning is capturing those risks of the future and you have plans in place to mitigate them.