Global Businesses Grapple with Surging Complexity and Costs as Risk Landscape Intensifies

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Nov 12, 2024, 00:01 ET

BOSTON, Nov. 12, 2024 /PRNewswire/ -- As companies around the world face unprecedented regulatory demands and a shifting risk landscape, balancing effective risk management with operational efficiency has become increasingly challenging. Pressures associated with the rise of environmental, social, and governance (ESG) regulations, cybersecurity threats, and rapid advances in artificial intelligence are driving up costs and creating complex, fragmented processes that hinder true resilience and responsiveness.

These are some of the findings of Boston Consulting Group's 2024 Global ESG, Compliance, and Risk Report, New Ways to Combat Rising Complexity and Costs. Drawing insights from a global survey of senior risk and compliance executives, the report highlights how businesses across industries are struggling to navigate escalating internal and external risk management requirements. The need to adapt to rapidly changing risks—including ESG concerns, geopolitical tensions, and evolving technologies like artificial intelligence (AI)—has led companies to adopt measures that have increased complexity and operational inefficiencies.

"Organizations are facing a rising tide of regulatory and risk-related challenges that are driving up operational costs. Our research indicates that many companies are addressing these challenges with piecemeal solutions rather than taking a holistic approach, which ultimately increases organizational complexity," said Katharina Hefter, a managing director and partner at BCG and a co-author of the report. "To stay resilient, businesses need to simplify their processes and frameworks, leveraging new technologies such as generative AI while prioritizing the most critical risks."

The report also reveals that many companies are underutilizing GenAI and other tools to reduce operational burdens, focusing instead on higher-level initiatives that fail to address the underlying complexity. According to BCG's findings, organizations that adopt a more streamlined, efficient approach to risk management can significantly reduce the number of documents, processes, and resources that they have to dedicate to compliance, while improving their overall resilience.

Among the key findings of the report:

Quickly Changing Risk Priorities. Emissions reporting surged to the top of the risk priorities list in 2024, with new regulations such as the EU's Corporate Sustainability Reporting Directive adding to compliance burdens.
Rising Reputational Risk. Adverse media coverage, particularly driven by social media, now ranks second as a key risk, yet many companies lack frameworks for monitoring such coverage and reacting swiftly to it.
Underutilization of GenAI. Although AI holds immense potential for risk mitigation, only 39% of companies use it to perform critical tasks, such as identifying compliance gaps or drafting policies.
Geopolitical and Internal Audit Demands. Companies face an unsustainable increase in complexity, driven almost equally by external regulations and internal audits, with overlapping requirements and a lack of coordination leading to higher costs.

The report highlights steps that companies can take to reduce complexity and costs while positioning themselves for resilience. Key recommendations include redefining governance models, streamlining risk management processes, and investing in advanced analytics and AI to enable real-time risk monitoring and response.

"Businesses today must reimagine how they approach risk and compliance to remain competitive," said Julia Gebhardt, a managing director and partner at BCG and a co-author of the report. "A holistic strategy that integrates new technologies and reduces redundancy will empower companies to navigate complex demands more effectively, driving both agility and resilience."

Read the full report here:

https://www.bcg.com/publications/2024/new-ways-combat-rising-complexity-costs

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About Boston Consulting Group
Boston Consulting Group partners with leaders in business and society to tackle their most important challenges and capture their greatest opportunities. BCG was the pioneer in business strategy when it was founded in 1963. Today, we work closely with clients to embrace a transformational approach aimed at benefiting all stakeholders—empowering organizations to grow, build sustainable competitive advantage, and drive positive societal impact.

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SOURCE Boston Consulting Group (BCG)