This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.
Author: Matthew Moshiri, President, Verisk Maplecroft, Zara Ingilizian, Head, Consumer Industries; Member of the Executive Committee, World Economic Forum
- Consumer industries play a key role in the global economy by providing essential everyday items but the sector is highly susceptible to disruption.
- The World Economic Forum and Verisk Maplecroft recently collaborated on a report that identified the key risks consumer industries need to prioritize.
- It outlined the top three, perhaps surprising, risks that businesses must tackle and how they can rethink their strategy to build resilience.
Consumer industries play a crucial role in national and global economies by providing essential everyday products that enhance people’s wellbeing and quality of life. From food to personal care and household items, these industries fulfil fundamental needs, while also fuelling economic growth, fostering innovation and generating employment for millions.
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However, the industry has faced unparalleled disruption from a volatile combination of factors cascading out from the global pandemic, geostrategic competition, increasing political polarization, economic instability, widening inequality, supply chain disruptions and the escalating impacts of climate change.
Critically, these issues form part of an ecosystem of interconnected environmental, social and political risks that can, and will, collectively threaten the ability of companies to generate value.
While no sector is immune to such challenges, the consumer industries’ transnational supply chains, economic interdependency and vulnerability to natural and man-made threats make it particularly susceptible to ongoing disruptions that can have far-reaching consequences and negative societal impacts.
To secure a responsible and resilient future in the face of mounting uncertainty and risk, consumer industries must shift their perception of resilience from a defensive measure to a strategic priority, seamlessly integrating it into their growth strategies.
Organizations that can effectively anticipate and navigate interconnected risks within a progressively opaque and complex world will emerge triumphant. Consequently, there exists an opportunity to embed resilience into the very fabric of these organizations, empowering them to not only weather future crises but also flourish alongside the communities and consumers they serve.
Scanning the horizon for risks
Understanding where and why risks will emerge, and how they will impact strategies is core to building resilience. A vital step in this process is the adoption of horizon scanning, which leverages a combination of data and analytics, trend analysis, expert insight and ongoing risk assessments.
This can give business leaders a strategic understanding of the intertwined external factors which could undermine their ability to effectively execute their strategies.
The World Economic Forum and Verisk Maplecroft recently collaborated on an insight paper created exclusively for the consumer industries community titled: Rethinking resilience in an age of unpredictability: Decoding the future risk landscape for the consumer industries.
The objective was to identify the key risks consumer industries will have to prioritize over the next decade by utilizing horizon scanning. This effort combined data from Verisk’s global risk intelligence unit, Verisk Maplecroft’s Industry Risk Analytics, which quantifies 51 environmental, social and governance (ESG) and political risks across 198 countries for 80 different industries, with analysis from its team of political, human rights and environmental experts.
Analysing all 18 sectors associated with the consumer industries led to a stark set of findings. Civil unrest; exposure to modern slavery violations and hardening human rights due diligence laws; and climate change vulnerability were the top three risks confronting consumer industries, and in particular, the agriculture sector.
Threats to the resilience of the agricultural sector are a concern at the global level not only because of its critical location in global consumer supply chains, but also because of its fundamental role in the most essential aspect of human existence: food.
Among the 80 industries analysed, agriculture stood out as the highest risk for both civil unrest and climate change vulnerability, while it was second only to metals and mining for modern slavery risks.
Decoding interconnected risks
Understanding how and where interconnected issues will develop can help consumer companies to put strategies in place that can counter vulnerabilities, as well as identify opportunities for the diversification of operations and supply chains.
Data from Verisk Maplecroft’s Civil Unrest Index reveals that in 2022-Q4, half the world’s countries recorded extreme- or high-risk exposure to civil unrest and its analysts believe the situation is certain to get worse before it improves.
Outbreaks of unrest not only pose direct threats to agricultural production and supply chain continuity but also to future consumption patterns and overall economic performance in affected countries.
In the current context of heightened social discontent due to the cost-of-living crisis, this could constrain the economic performance of consumer goods companies over 2024-2025.
Civil unrest risks run high among leading agricultural producing countries. Image: World Economic Forum and Verisk Maplecroft
Likewise, trend analysis in the report shows that the risk of modern slavery appearing in supply chains is on the rise and will worsen as a direct consequence of current global economic conditions, conflict, and migration, which drive vulnerable people into exploitative situations.
The data reveals that a quarter of all countries have recorded a significant increase in this risk since 2016. Minimizing exposure to modern slavery is the leading human rights challenge facing all consumer industries over the next five years.
With an increasingly large raft of supply chain legislation coming into force, failure to tackle it will evolve from posing reputational risks to major financial and legal ones.
World’s leading agricultural producers at forefront of modern slavery risks. Image: World Economic Forum and Verisk Maplecroft
In the longer term, Verisk Maplecroft identifies the direct and indirect impacts of climate change as the primary challenge facing agriculture supply chains and the companies reliant on its outputs.
Increasingly frequent and severe weather-related events have the potential to create severe disruption as farmers battle drought, flooding, and more intense storms. But for societies with weaker institutional, social, and economic safeguards, secondary ‘cascading’ risks, such as civil and political instability, migration, and food insecurity, will also emerge.
Consumer industries must rethink strategy
Failure to shift attention from the challenges of day-to-day commercial pressures to the ‘big picture’ will leave an enterprise excessively exposed to a range of longer-term risks. Therefore, rethinking corporate strategies to withstand rising uncertainty is a matter of urgency.
Amidst uncertainty, there exists a significant potential to drive new value creation through employee empowerment and fostering internal and external collaboration.
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