Top Risks for Businesses in 2024

Just weeks into 2024, it is already clear that uncertainty will be the watchword. Will the economic soft landing of 2023 persist into 2024? Will labor unrest, strong in 2023, settle down as inflation cools? Will inflation remain tamed? Will the U.S. elections bring continuity or a new administration with very different views on the role of the U.S. in the world and in regulating business? 

Uncertainty is also fueling a complex risk environment that will require monitoring global developments more so than in the past. As outlined below, geopolitical risks are present, multiple, interconnected and high impact. International relations have traditionally fallen outside the mandate of most C-Suites, but how the U.S. government responds to geopolitical challenges will impact business operations. Beyond additional disruptions to global trade, businesses in 2024 will face risks associated with expanding protectionist economic policies, climate change impacts, and AI-driven disruptors.

Geopolitical Tensions Disrupting Global Trade

The guardrails are coming off the international system that enshrines the ideals of preserving peace and security through diplomatic engagement, respecting international borders (not changing them through military might) and ensuring the free flow of global trade. In 2022, the world was shocked by Russia’s invasion of Ukraine, but it has taken time for the full impact to reverberate through the international system. While political analysts write on a “spillover of conflict,” the more insidious impact is that more leaders of countries and non-state groups are acting outside the guardrails because they are no longer deterred from using military force to achieve political goals, making 2024 ripe for new military conflicts disrupting global trade beyond the ongoing war in Europe.

In October 2023, Hamas launched a war from Gaza against Israel. Thus far, fighting has spread to the West Bank, between Israel and Lebanese Hezbollah in the north, and to the Red Sea, with Iranian-backed Houthis attacking shipping through the strategic Bab al Mandab strait. Container ships and oil tankers, to avoid the risks, are re-routing to the Cape of Good Hope, adding two weeks of extra sailing time, with the associated costs. Insurance premiums for cargo ships sailing in the eastern Mediterranean have skyrocketed, with some no longer servicing Israeli ports. Companies and retailers with tight delivery schedules are switching to airfreight, which is expected to drive up airfreight rates.

Iran, emboldened by its blossoming relationship with Russia as one of Moscow’s new arms suppliers, is activating its proxy armies in Yemen, Iraq, Syria and Lebanon to attack Western targets. In a two-day period in January 2024, the Iran Revolutionary Guards directly launched strikes in Syria, Iraq and Pakistan. Nuclear-armed Pakistan retaliated with a cross border strike in Iran. While there are many nuances to these incidents, it is evident that deterrence against cross-border military conflict is eroding in a region with deep, festering grievances among neighbors. Iran is in an escalatory mode and could resume harassing shipping in the Persian Gulf and the strategic Strait of Hormuz, where about a fifth of the volume of the world’s total oil consumption passes through on a daily basis. 

In East Asia, North Korea is also emboldened by the changing geopolitical environment. Pyongyang, too, has become a major supplier of weaponry to Moscow for use in Ukraine. While Russia (and China) in the past have constructively contained North Korean predilection for aggression against its neighbors, Supreme Leader Kim Jong Un may believe the time is ripe to change the status quo. Ominously, in a Jan. 15 speech before the Supreme People’s Assembly (North Korea’s parliament), Kim rejected the policy of reunification with South Korea and proposed incorporating the country into North Korea “in the event of war.” While North Korean leaders frequently revert to brinksmanship and aggressive language, Kim’s speech reflects confidence of a nuclear power, aligned with Russia against a shared adversary – South Korea, which is firmly aligned with the G7 consensus on Russia. A war in the Korean peninsula would be felt around the world because East Asia is central to global shipping and manufacturing, disrupting supply chains, as well as the regional economy.

China is also waiting for the right moment to “unite” Taiwan with the mainland. Beijing has seen the impact of Western sanctions on Russia over Ukraine and has been deterred from aiding the Russian war effort. In many ways, China has benefited from these sanctions and the reorientation of global trade. Also, Russia, with its far weaker economy, has proven surprisingly resilient to sanctions, another lesson for China. Meanwhile, the Taiwanese people voted in January and returned for a third time the ruling party that strongly rejects Chinese territorial claims. Tensions are high, with the Chinese military once again harassing Taiwanese defenses. For Beijing, the “right moment” could fall this year should conflict break out on the Korean peninsula, which would tie the U.S. down because of the Mutual Defense Treaty. 

The uncertainty here is not that there are global tensions, but how the U.S. will respond as they develop and how U.S. businesses can navigate external shocks. Will the U.S. be drawn into a new war in the Middle East? Can the U.S. manage multiple conflicts, already deeply involved in supporting Ukraine? Is the U.S. economy resilient enough to withstand trade disruptions? How can businesses strengthen their own resiliency?      

Economic Protectionism Increasing Costs and Risks

Geopolitical tensions, the global pandemic and the unequal benefits of globalization are impacting economic policies of the U.S. and the political discourse around the merits of unrestrained free trade. Protectionist economic policies are creeping in, under the nomenclature of “secure supply chains,” “friend-shoring” and “home-shoring.” The U.S. has imposed tariffs on countries (even allies) accused of unfair trade practices and has foreclosed access to certain technologies by unfriendly countries, namely China.

While the response to some of these trade restrictions are new trade agreements with “friends” to regulate access under preferred terms, in essence creating multiple “friends” trade blocs for specific sectors, other responses are retaliatory, including counter tariffs and export restrictions or outright bans. In 2024, the U.S. economy will see the impact of these trade fragmentation policies in acute ways, with upside risks of new business opportunities and downside risks of supply chain disruptions, critical resource competition, increased input costs, compliance risks and increased reputational risks.

Trade with China, which remains significant and important to the stability of the U.S. economy, will pose new risks in 2024. While Washington and Beijing have agreed to some political and security guardrails to manage the relationship, economic competition is unrestrained and stability in the bilateral relations is not guaranteed. The December 2023 bipartisan report by the House Select Committee on the Strategic Competition Between the United States and the Chinese Communist Party, with its 150 recommendations on fundamentally resetting economic and technological competition with China, if even partially adopted, risks reigniting the trade war.

2024 is a presidential election year for the U.S. A change of control of the executive branch could result in many economic and regulatory policy reversals. The definition of “friend” could shift or narrow. Restrictions on trade with China could accelerate.

Impacts of Climate Change and Sustainability Policies

2023 was the hottest year on record, and El Niño conditions are expected to further boost the warming trend. Many regions experienced record-breaking wildfire activity in 2023, including Canada where 18 million hectares of land burned. Extreme storms caused life-threatening flooding in Europe, Asia and the Americas. 2024 is expected to bring even more climate hazards. The impacts will be physical and financial, including growing insurance losses and adverse impacts on operations and value chain. Analysts expect that in 2024, the economic and financial costs of adverse health impacts from climate change will increase, with risks related to the spread of infectious disease, insufficient access to clean water, and physical harm to the elderly and vulnerable. The direct economic effect will be on health systems, but also loss of productivity due to extreme weather incidents and effects of epidemics.

Energy transition to low-carbon emissions is underway in the U.S., but it is uneven and still uncertain. The financial market is investing in an impressive number of startups and large-scale projects revolving around cleantech. Still, there is hesitancy on the opportunity and risks of sustainability. Thus far, progress towards sustainability goals has been private sector-led and government-enabled. There is a risk that government incentive programs encouraging the transition to low-carbon energy could be reversed or curtailed under a new administration.

In 2024, some companies will face more climate disclosure compliance requirements. The Securities and Exchange Commission (SEC) is expected to release its final rule on climate change disclosures. The final action has been delayed several times because of pushback by public companies on some of the requirements, including Scope 3 greenhouse gas emission disclosures (those linked to supply chains and end users). California has not waited for the SEC’s final rule: In October 2023, Gov. Gavin Newsom signed into law legislation that will require large companies to disclose greenhouse gas emissions. The California climate laws go into effect in 2026, but companies will need to start much earlier to build the capabilities to plan, track and report their carbon footprint. For U.S. companies doing business in the European Union, they will need to comply with the EU Corporate Sustainability Reporting Directive, with the rules coming into force mid-2024.

Disruptive Technology

In 2023, generative AI was the talk of the town; in 2024, it will be the walk. Companies are popping up with new tools for every imaginable sector, to increase efficiency, task automation, customization, personalization and cost reduction. Business leaders are scrambling to integrate AI to gain a competitive edge, while navigating the everyday risks related to privacy, liability and security. While there are concerns that AI will displace humans, there is a growing consensus that while some jobs will disappear, people will focus on higher value work. That said, new rounds of labor disruptions linked to workforce transition are likely in 2024.

2024 will also bring AI-generated misinformation and disinformation. Bad actors will spread “synthetic” content, such as sophisticated voice cloning, doctored images and counterfeit websites, seeking to manipulate people, damage companies and economies, and foment dissent.

In 2024, around 2 billion people in more than 50 countries will vote in elections at risk of manipulation by misinformation and disinformation, which could destabilize the real and perceived legitimacy of newly elected governments, risking political unrest, violence, terrorism and erosion of democratic processes. Large democracies will hold elections in 2024, including the U.S., the EU, Mexico, South Korea, India, Pakistan, Indonesia and South Africa. Synthetic content can be very difficult to detect, while easy to produce with AI tools.

This is not a theoretical threat; synthetic content is already being disseminated in the U.S., targeting New Hampshire voters with robocalls that share fake recorded messages from President Biden encouraging people not to vote in the primary election. The U.S. is already polarized with citizens distrustful of the government and media, a ready vulnerability. Businesses are not immune. Notably, CEOs have stood apart, with higher ratings for trustworthiness and risk being called upon to vouch for “truth” (and becoming collateral damage in the fray). 

AI-powered malware will make 2023 cyber risks look like child’s play. Attackers can use AI algorithms to find and exploit software vulnerabilities, making attacks precise and effective. AI can help hackers quickly identify security measures and evade them. AI-created phishing attacks will be more sophisticated and difficult to detect because the algorithms can assess larger amounts of piecemeal information and craft messages that mimic communication styles.

The role of states backing cyber armies to spread disinformation or steal information is growing and is part and parcel of the erosion of the existing international order. States face little deterrence from digital cross-border attacks because there are yet to be established mechanisms to impose real costs.