This decisive decade: the evolving risk landscape by Elisabeth A. Wilson

this decisive decade: the evolving risk landscape

by Elisabeth A. Wilson

In 2021, we saw cyber security, data privacy, crypto currency, climate change, Environmental, Social and Governance (ESG), and third party risk all come to the forefront of our risk landscape, all jockeying for top position. Risks are being hurled at our institutions from all sides. Their presence may be magnified by the current extreme conditions under which we find ourselves as a result of the COVID-19 pandemic. The hard truth –and chilling fact– is that the pandemic has ushered in a much-needed sense of awareness across the financial industry that low-probability, high-impact scenarios can and will come to fruition. There is also an uneasy sense this may only be the beginning.

looming uncertainties

The world faces an uncertain future. A confluence of events is taking shape this decade that will alter the course, not just of our history, but of our humanity. Recent scientific evidence indicates that current emission rates must be reduced within the next eleven years to avoid a global temperature rise in excess of 1.5 degrees Celsius (above pre-industrial levels), ratcheting up the unease with which we recognize ever more virulent weather-related patterns and events.1 Predicting and hedging against the potential economic, market, credit and operational shocks that could result from climate changerelated physical and transition risks is proving even harder to surmount at this time.

Ongoing, dramatic shifts in political leadership across the global powers are changing not only the face, but the shape of geopolitics. Asia is set to overtake the West as the leading global consumer presence, which will alter world economic dominance.2 Cyber has become the new battlefront on which wars are fought, heightening vulnerabilities and instabilities inherent in the technology we increasingly rely upon. Artificial Intelligence (AI) will likely be the dominant form of technology by the onset of 20303 , and the implications to both the job market and to global supremacy could be profound.4 Generation X and millennials stand on the cusp of inheriting the wealth accumulated by their baby boomer parents and grandparents, and these younger, more socially and environmentally conscious generations will likely reshape the business and investment horizon. Cryptocurrency is an additional layer in the mix of financial and economic ambiguity. And compounding it all is unprecedented political polarization and isolation, which is driving extremism and inhibiting compromise and progress. Our future is being reshaped daily, and rapid change and disconcerting uncertainty are the new reality.

the role of risk managers

The risk manager’s role in the face of all this is not an enviable one. It will fall in part to us to predict the areas of greatest vulnerability and to prioritize mitigation strategies from this list of competing potential crises and new ones that emerge along the way. Risk managers more than others perhaps have a better a sense of the many risk scenarios that could be realized in the next ten years. But, like everyone else, we do not know exactly when or what the potential fallout will be.

Ironically, it is the very opacity inherent in our future that empowers us as risk managers. Today, we cannot possibly calibrate answers –or even strategies to determine the answers– we need in order to properly analyze risk and propose mitigating controls. Where our influence will be most profound is in the very first steps that must be taken to determine how these risks can be assessed. We risk managers will be instrumental in formulating the basis of scenario analysis and models that will be key to forecasting climate change-related physical and transition risk realization. Our research and analysis of information security, AI and cryptocurrency risk exposures will help inform public comment solicited by regulators, and thus the backbone of future regulatory guidance. Our attention to shifting global and domestic dynamics will help us position our institutions, not only to hedge risk, but to capitalize on opportunities offered by new economic avenues and investor preferences.

Ahead of 2030, risk managers stand at the forefront of this decisive decade.5 We cannot serve as an absolute buffer against change. We cannot foresee the future. But we may help to reshape it.

Disclaimer: All views expressed in this article are my own and do not represent the opinions of any entity that I may be associated with.

references

1. Neuman, Scott. “Earth has 11 years to cut emissions to avoid dire climate scenarios, a report says.”

NPR, November 4, 2021, https://www.npr.org/2021/11/04/1052267118/climate-change-carbondioxide-emissions-global-carbon-budget 2. Kharas, Homi and Fengler, Wolfgang. “Which will be the top 30 consumer markets of this decade? 5 Asian markets below the radar.” Brookings, August 31, 2021, https://www.brookings.edu/blog/ future-development/2021/08/31/which-will-be-the-top-30-consumer-markets-of-this-decade-5-asianmarkets-below-the-radar/.

3. Agrawal, Manas. “The Possibilities of AI in 2030: Transformation Across Dimensions.” Forbes, August 23, 2021, https://www.forbes.com/sites/forbesbusinesscouncil/2021/08/23/the-possibilities-of-ai-in2030-transformation-across-dimensions/?sh=efab8366b67a.

4. Gill, Indermit. “Whoever leads in artificial intelligence in 2030 will rule the world until 2100.” Brookings,

January 17, 2020, https://www.brookings.edu/blog/future-development/2020/01/17/whoever-leadsin-artificial-intelligence-in-2030-will-rule-the-world-until-2100/. 5. “U.S.-China Joint Glasgow Declaration on Enhancing Climate Action in the 2020s.” U.S. Department of State, November 10, 2021, https://www.state.gov/u-s-china-joint-glasgow-declaration-onenhancing-climate-action-in-the-2020s/. Accessed: November 10, 2021. Media Note.

author

Elisabeth A. Wilson

Elisabeth A. Wilson has worked for over 13 years in the financial industry. She was recruited to Atlantic Union Bank’s Enterprise Risk Management Department in 2016 to support development of the company’s then-burgeoning risk management framework. Recently charged with crafting the Bank’s Environmental, Social, and Governance (ESG) Risk Framework, Elisabeth continues to build, implement, and manage key risk programs, driving regulatory alignment and promoting bank-wide engagement while simultaneously supporting business line risk oversight. Elisabeth is based in Richmond, Virginia.