The top five risks for 2024: through an ESG lens

Please note: This article is designed to be thought leadership content, to offer big picture views and analysis of interesting issues and trends that matter to our clients and the world in which we live. It is not designed to be taken as expert advice, investment advice or a recommendation, and any reference to specific companies is therefore not an opinion as to their present or future value or broader ESG credentials. Reliance upon any of the information in this article is at the sole discretion of the reader. Some of the views and issues discussed in this article may derive from third-party research or data which is relied upon by Barclays Private Bank and may not have been validated. Such research and data are made available as additional information for the reader where appropriate.

Key points

• Following record temperatures in 2023, extreme weather events are seen as the greatest risk facing investors and economies this year, according to a World Economic Forum survey
• Artificial intelligence (AI)-generated misinformation or disinformation is seen as the second-highest concern. AI’s increasing effectiveness makes the potential for such attacks to cause financial and reputational damage for companies more likely   
• Cyber-attacks and the polarisation of politics and societies also top decision-makers’ agendas, particularly in the context of upcoming US elections, where such factors may increasingly influence the outcome
• Including ESG indicators into investment decision-making can better position investors to spot risks and navigate a successful path through 2024 and beyond

The year gets underway with geopolitical, economic and sustainability risks at the fore of many investors’ minds. With key performance indicators differing by industry, country and region diverging, investors can look to the World Economic Forum’s (WEF) Global Risk report for 2024 for a flavour of what to watch out for (see chart).

This year’s top five risks 

The five biggest risks thought most likely to cause a material crisis on a global scale in 2024 (percentage of people who named key risks)

Companies will need to determine how to prepare for, and mitigate, these risks. Investors will want to assess companies’ exposure and resilience. 

To help them, investors can incorporate environmental, social and governance (ESG) indicators and data into their decision-making. Viewing such risks through an ESG lens can help you understand the internal operational quality of a business, and therefore its ability to mitigate material risks on future cash flow. 

The top five risks are highlighted below, with their implications focused on companies and investors.

1. Extreme weather

Two-thirds of respondents to the WEF survey picked extreme weather as the foremost risk. This follows the hottest year on record¹ and a period that saw a range of weather-driven disasters². During the warming phase of the El Nino-Southern Oscillation (ENSO) in 2024, warmer weather will likely intensify the risk of extreme weather events³. 

As such events occur, companies face “primary physical risks” such as direct damage to assets, buildings, stock and infrastructure as a result of “acute” weather events. In 2023, the financial impact of these events was estimated to be $250 billion globally⁴. 

To understand their potential financial impacts, investors can incorporate physical risk considerations into their investment process as outlined in the article ‘Could your investments go up in smoke?’ Using ESG data on physical risks can help investors to evaluate risk exposure by sector, geography, company and value chain, and management’s plans and preparedness for extreme weather. 

2. AI-generated misinformation and disinformation

Last year saw artificial intelligence (AI) become far more accessible to people, along with the promise and risks it brings. Over half of respondents expect 2024 to see its potential use for generating misinformation or disinformation. With regulation still nascent, highly sophisticated tools are now available to create false or manipulated content. And without needing deep technical knowledge or skills.   

As already seen, AI can be used against companies, spreading disinformation and significantly damaging reputations, and valuations, very quickly⁵.

Optimistic investors will highlight AI’s benefits around productivity or field-level breakthroughs. They would be wise also to assess the negative risks for companies of AI misuse. Investors can assess how thoughtfully companies are adopting the technology and where synthetic content could be used against them.

3. Societal and/or political polarisation

The risk of increasing ideological and cultural divisions within and across communities and countries is much in vogue this year, with a heated US presidential election campaign under way. This polarisation can result in gridlock in political decision-making or oscillation between more divergent ideologies during election cycles⁶. 

Facing this risk, companies may be hesitant to invest or commit to long-term plans. And where societal issues arise, there is the chance of a backlash, whether from action or inaction from employees and other stakeholders. Finally, where polarisation plays out at a geopolitical level, companies’ international production and supply chains can get caught amid the tension. 

Country-level governance data can help investors to track exposure to countries with heightened polarisation. More specifically, looking at governmental stability and institutional strength, with indicators around democratic governance and judicial independence, might help to assess the scale of risk involved for sovereign and corporate holdings. 

4. Cost-of-living crisis

While inflation moderated in leading economies during 2023, the livelihoods and well-being of broad segments of the population continue to feel the strain. If real household income can’t match the costs of (essential) goods, workers face a cost-of-living squeeze that could hit consumption levels and their productive abilities. 

This could see less demand as consumers cut back to absorb price increases or manage debt burdens. The prospect of more industrial action remains real, with the risk of production delays and missed growth opportunities. All the while, with workers under financial stress, productivity and quality may suffer⁷.

Investors can look at cultural and monetary factors within ESG indicators to assess potential risk and impact. The strength of worker protection, extent of non-statutory benefits and quality of the relationship between labour and management, all provide leading indicators. Ultimately, assessing wage rates relative to regulated minimums or local averages can provide the best gauge for how much a workforce may be impacted by economic conditions.

5. Cyber-attacks

As our digital presence grows, the weapons and tools to carry out crime, espionage and warfare online have expanded too. In turn, the risk of cyber-attacks, which gain control over digital presence or assets and/or cause operational disruption, grows too.

Successful attacks can lead to the loss of revenue with unanticipated remediation and litigation costs for companies⁸. Furthermore, long-term damage can be done to corporate reputation, consumer trust and market share. More generally, new and enhanced regulations and security requirements will increase business costs. 

Investors seeking insight on a firm’s exposure, and vigilance, to cyber-attacks can use social data, particularly around privacy and data security. This starts by assessing the nature and extent of personal and corporate data held, and its vulnerability to, for example, ransomware, data fraud or data theft. Then evaluating how well management is implementing cybersecurity and risk mitigation measures.

Looking ahead 

The Outlook 2024 report outlined our baseline views and how these could diverge in ‘What could go wrong, or right?’ That said, predicting it is notoriously difficult. 

However, investors who augment their decision-making with ESG data may be better placed to spot the risks and navigate a path through the difficult choices in 2024 and beyond. 

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