Addressing the Asian mindset on underrated risks

Insights reveal that climate change is responsible in influencing four key threats

Addressing the Asian mindset on underrated risks

Insurance News

By Kenneth Araullo

Recent research from Aon reveals that in the Asia Pacific region, critical risks such as climate change, cash flow or liquidity risk, environmental social governance (ESG) or corporate social responsibility (CSR), and intellectual property (IP) risk are not among the top 10 concerns.

However, climate change, though not a top 10 risk itself, significantly influences four key risks: business interruption, changing market trends, supply chain or distribution failure, and regulatory or legislative changes. Aon Asia Pacific CEO Anne Corona said that newer and emerging threats continue to reshape the views of risks for companies, necessitating better decisions.

“With cyber risks/data breach, economic slowdown and business interruption identified as top risks for businesses facing organisations in Asia Pacific today, there is a compelling need for a shift in mindsets around being better prepared for risks by using data and analytics and experts to advise on the dynamics of long-tail risks,” Corona said.

Underrated risks in Asia

Climate-related regulatory and legislative shifts are causing significant concern for companies in the region, posing a complex challenge. The increasing frequency and severity of extreme weather events elevate the risks of business interruption and supply chain disruptions. Additionally, the transition towards net-zero goals affects market trends and necessitates climate disclosures across various sectors. Supply chain risks also extend to the management of Scope 3 emissions, urging companies to develop contingency plans for suppliers lagging in transition efforts.

After years of climate change scenario analyses under the Task Force on Climate-Related Financial Disclosures, the understanding of how climate change impacts individual business risks has improved. As investors and regulators focus more on how organisations address climate-related risks, the importance of climate disclosures becomes more critical.

Surprisingly, in light of the current economic climate, cash flow or liquidity risk, ranked seventh in 2021, has dropped from the top 10 in 2023. With rising interest rates and a slowing economy, maintaining sufficient cash reserves is crucial for organisations to meet financial obligations and mitigate insolvency risks amidst heightened geopolitical tensions.

In terms of regulatory compliance and ESG or CSR initiatives, pay equity is becoming a focus in the Asia Pacific. Regulatory scrutiny is intensifying in countries like Australia, Japan, and India. According to Aon's 2022 Asia Pacific Corporate Governance and ESG Survey, a growing number of organisations are including diversity metrics in leadership performance indicators and monitoring pay equity at the board level. This trend is expected to accelerate as ESG factors become integral to talent attraction and investment.

The report also highlights the significance of absenteeism and rising healthcare costs linked to chronic medical conditions. Stress is a major factor driving healthcare expenses and absenteeism in the region, as evidenced by Aon and Telus Health's Asia Mental Health Index report. The report found that 82% of employees in Asia face a moderate to high risk of mental health issues, impacting productivity, employee engagement, and increasing staff turnover.

In the highly innovative and technology-dependent Asia Pacific region, IP is gaining value. With intangible assets constituting a major portion of companies' market value, the region is leading in global innovation. The protection of IP against infringement and its utilisation for growth is becoming increasingly important for companies in the region.

“The world is more volatile, reflecting a series of profound transitions across trade, technology, weather, and workforce issues that have awoken business leaders to the increasingly interconnected nature of risk and people challenges. Through the use of advanced analytics and more integrated risk capital and human capital capabilities, we’re helping clients quantify, manage and match capital to the risks they recognise today as we innovate on their behalf to serve their future needs,” Aon CEO Greg Case said.

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