What unseen megatrends will shape your transformation?

Managing long-term risks is more critical than ever, yet often overlooked.

In brief

• The COVID-19 pandemic has highlighted the importance of focusing on long-term risks.
• Yet, organizations systemically underestimate and underinvest in long-term risks.
• Businesses can mitigate these risks by envisioning future states, mapping trust journeys, conducting risk assessments and building flexibility into their strategic plans.

The pandemic we are living through has brought home the need to take seriously risks that might seem improbable or far off in the future. As we are all learning, such risks, once unleashed, can expand quickly and with devastating global impact.

Yet, companies frequently fail to take adequate measures to address megatrends and their associated long-term risks. There is a significant disconnect between the matters identified in the corporate risk disclosures mandated by regulators — which frequently include long-term, strategic risks — and the risks actually addressed by corporate Risk Management functions — typically shorter-term, operational threats.

A world of cascading risks

Of course, long-term risks are not limited to pandemics. They can include everything from climate change to debt crises and social unrest, and they merit serious attention. In a recent blog post, I argue that we now live in a time when improbable events will occur not just with greater frequency, but also simultaneously — and that we are systemically underestimating the probability of such “cascading risks.”

The EY Megatrends reports highlight a range of long-term risks that companies face in today’s market. While the megatrends focus on long-term forces spanning the social, political and economic realms, they can generate risks that are squarely in the business domain and have near-term consequences.

The Megatrends 2020 report, for instance, explores how we are increasingly operating in a “techonomic cold war,” driven by populist leaders with interventionist instincts and the race to dominate next-generation technologies such as electric vehicles and 5G networks. In this environment, businesses are increasingly likely to be targeted using a range of unconventional tactics, from company bans and blacklists to cyberattacks using weaponized disinformation.

It’s easy to see how the techonomic cold war heightens a range of risks for companies. At the broadest level, it creates new sources of geopolitical risk for global corporations that could find themselves enmeshed in geopolitical tensions. Companies face increased operations risk as global supply chains become vulnerable to trade wars and company bans. They face heightened intellectual property (IP) risk as the race between nations to dominate next-generation technologies increases the likelihood of governments intervening on behalf of domestic firms, including through corporate espionage and IP theft. Perhaps most significant, though, is the intensification of cybersecurity risk, as lines blur between state and non-state malicious actors and a new kind of cyber-attack emerges: weaponized disinformation.

The weaponizing of disinformation — explored more fully in two other megatrends, “synthetic media” and “future of thinking” — raises challenges for companies beyond cybersecurity. Businesses face increased reputational risk through the prospect of malicious actors deploying deepfake videos and other synthetic media to damage a company’s brand and reputation. Synthetic media could also be used to drive down a company’s stock price, creating new sources of financial risk.

“The next frontier of cybersecurity is disinformation,” says Kris Lovejoy, former EY Global Advisory Cybersecurity Leader. “Deepfakes and other synthetic media can exact significant damage, and companies need to shore up their defenses — whether through technology or training.”