Regional Views

Pacific

Key Issues Currently Reflected in the Risk Selection

Before the COVID-19 pandemic struck in early 2020, Australia had suffered only one technical recession in the past 30 years. But the impact of the pandemic recession was largely deflected by governmental stimulus programs whose financial impact will be felt by future generations. This may explain why economic slowdown and slow recovery does not rank among the top four risks in Australia, as it does in other regions. However, distressed global supply chains, geopolitical tensions and continued uncertainty surrounding the post-COVID-19 recovery could make Australia’s national business environment more vulnerable to economic shocks. Indeed, this is evident in respondents’ assessments of future risk, with economic slowdown and slow recovery jumping to number four.

Underrated Risks

Commodity price risk and scarcity of raw materials is an underrated risk for the region. Australia’s entire economy is supported by a few key commodities, such as coal. If any of those commodities vanish for whatever reason — including pressure from environmental, social and governance (ESG) regulations — the country’s economy will suffer badly.

Geopolitical situations, particularly China’s determination to reduce its dependence on Australian iron ore, color this risk. If coal or iron ore production were to cease across Australia, the economy would plunge into recession. The growing importance of ESG as an economic influencer in the developed world brings this risk into sharp focus for Australian companies.

A second underrated risk is climate change, given its potential impact on Australia’s burgeoning and strategic capacity for food production. Climate change risk exposes Australia to even greater geopolitical risk, so companies should find ways to address and mitigate its impact.

Future Challenges and How Organizations Can Address Them

The future risks that respondents cited as the top five capture the challenges the region will face. Each of these risks contains a mix of elements that companies can control (wholly or partially), influence, or neither control nor influence but still plan for.

Addressing these risks in a methodical manner is clearly critical, but it’s equally important to ensure that enterprise risk management does not prioritize process over outcomes. Organizations can have excellent processes in place, but without appropriate behaviors — individual, collective and organizational — even the best processes won’t serve their intended purpose.

There are numerous ways to improve an organization’s focus on outcomes, but one that is fundamental to risk culture is the involvement of, and indeed leadership by, line management. Although perspectives on risk may differ between the board room and the shop floor, a common risk ethos must prevail across the entire organization.

Current Top 10 Risks

Predicted Future Risks

By 2024

Have a question? Contact us.

Section 2

Risk Management In-Depth: Key Findings

©2021 Aon plc. All rights reserved | Contact Us | Privacy Policy | Legal