Geopolitics will be more diversified and dynamic in 2024. Businesses that don’t keep up will falter.
The need for many businesses to catch up on their climate adaptation needs has never been more pressing, but financial support from governments to achieve this will be meagre and geopolitical competition will make access to critical supplies increasingly difficult.
Disruption wrought by climate change will be the principal threat multiplier of 2024.
A huge operational challenge in their own right, climate events will bring increasingly diverse impacts ranging from supply-chain disruption to migration. Critically, climate disruption will continue to exacerbate ongoing challenges related to conflicts, political instability, economic protectionism and many others.
The coming year will see increasingly frequent and severe weather events caused or intensified by climate change meet other significant – even if unrelated - natural phenomena, notably El Nino. According to the UN, the past eight years were the warmest ever recorded globally, and evidence suggests that 2024 will be no different. This makes the confluence of simultaneous weather developments around the world increasingly likely, with the potential to dramatically impact the business environment. Operational risks levels will be higher than ever. The need for many businesses to catch up on their climate adaptation needs has never been more pressing.
Governments will offer little financial support to help with this adaptation. Fiscal constraints, political polarisation and conflicting geopolitical priorities mean the private sector will shoulder much of the burden related to the infrastructure and technology transformations. Climate change mitigation will continue to be challenging in 2024, stymied by collective inaction and growing geopolitical competition. COP28 in the UAE is unlikely to be a game changer for climate agendas’ implementation, as funding remains a contentious issue. The increasingly tight market for critical minerals, which has been marked by multiple powers attempting to secure supply-chains, is a strong sign that geopolitical competition will be a significant risk to the global energy transition. As countries and blocs of countries work to improve their hands in the energy transition boardgame, businesses will be exposed to considerable regulatory risks, including those related to export controls, overall trade restrictions and local content requirements.
Regulators will add complexity to the challenge. Despite growing attempts to harmonise requirements, such as those around climate disclosure, the global architecture for decarbonisation remains flawed and inconsistent. Current carbon offsetting systems – broken almost from the start – are a good example of that, highlighting the need for companies to go the extra mile to ensure their net-zero strategies are robust and resilient. Increasingly stringent ESG regulation, mainly led by the EU, as well as growing ESG backlash spilling-over from the US (where it will be a hot-topic on the campaign trail) mean that companies will have to navigate a fine line between compliance pressure and reputational exposure among ESG sceptics. The entry into force of the EU’s Corporate Sustainability Reporting Directive (CSRD) means that almost 50,000 companies will be subject to mandatory reporting – including a number of non-EU companies. The flagship disclosure standards by the International Sustainability Standards Board (ISSB) will also become effective in January 2024, and the SEC in the US will also launch its much-debated climate reporting rules. ESG data reliability issues will persist and exacerbate disclosure challenges, as companies continue to struggle with information such as around carbon accounting methodologies. In the absence of any regulatory consistency or global vision around the global energy transition, companies will be left to take bets on the fuels and energy systems of the future, which may put at risk their decarbonisation plans – and their long-term existence if they take the wrong bet.
2024 will be the year in which many companies will need to make tough decisions that balance pragmatism with farsightedness, and which will likely determine their reputation and profitability for years to come.
2024 will see a high-water mark in the complexity and disruptiveness of the threat landscape.
In 2024, companies across the world will be challenged by a paradigm shift in the integrity and resilience of emerging technologies.
The risks for businesses and nations in the coming year centre on huge uncertainty on how US priorities might change and how China will steer its economy.