The evolving strategic rivalry between the world's top two economies will continue to have a wide-reaching impact on business and trade in 2022. With Washington committed to challenge Beijing's rising influence and increasingly assertive posture in pursuing its territorial claims, issues such as Hong Kong, Xinjiang, Taiwan and the South China Sea disputes will remain major geopolitical flashpoints next year.

Simmering tensions are most likely to escalate around politically sensitive events such as national days or elections, or as a result of military exercises, triggering fluctuations in the region's capital markets. Fishing and hydrocarbon operations in or near disputed waters will be most at risk of harassment and disruption by Chinese law enforcement, while international shipping and supply chains could be disrupted in the scenario of a naval stand-off between China and the US. The risk of such a stand-off remains low-to-moderate.

International businesses will also be exposed to risks associated with the ongoing row over China-US trade. The Biden administration is expected to maintain a restrictive regulatory regime on Chinese tech companies, or access to US technology. As precedent shows, this could prompt China to resort to other means, including cyber espionage or talent poaching, targeting foreign businesses and research institutions.

Meanwhile, the sticking point of Chinese state subsidies is likely to remain a notable barrier for many US businesses seeking to enter or expand in China. Indeed, as the regulatory clampdown on the private sector in 2020 illustrated, Beijing has been tightening its grip on commercial and economic affairs. Such close scrutiny of businesses (foreign and domestic) will continue for much of the 2022, as the ruling Communist Party prepares for its quinquennial National Congress – likely to be held in autumn 2022 – which is set to herald an unprecedented third term for President Xi Jinping.

While the resolution of Huawei CFO Meng Wanzhou's extradition case and her house arrest in Canada will have helped to resolve a longstanding quarrel between the US and China, it is plausible that securing Meng's release has emboldened Beijing, encouraging the use of 'diplomatic hostages' in future disputes, underlining an enduring risk to China-based foreign businesses and individuals.

The digitised world has put information security among the top strategic concerns for organisations and their stakeholders. Executives will be increasingly reliant on security managers to articulate risks at board level in a language that non-experts can understand, while prospective investors and business partners will direct more intense scrutiny on cybersecurity frameworks and compliance. 

The coming year will see more organisations embracing a holistic approach to security management. The lifting of restrictions in some countries have allowed businesses to reduce the risk of cyber attacks by returning to the office; however, this option is not immediately available to all sectors. Many businesses will find that the need to modernise borderless security architectures, leverage innovative solutions and upskill staff will require costly investments. Zero-trust frameworks and role-based access controls (RBAC) are among the techniques that will be crucial for mitigating the impact of cyber attacks inside business perimeters in 2022. Accordingly, threat actors will redouble their efforts to draft company insiders into criminal schemes.

While the main risks from cyber intrusions are still financial loss and reputational damage, security managers will also have to consider physical harm. The risk of a hostile actor successfully weaponising operational technologies such as Internet of Things (IoT), smart cities and autonomous vehicles is increasing every year, with many businesses lacking viable options to set up training and response drills in these areas. Those operating in multiple jurisdictions will also increasingly feel the regulatory burden as new privacy laws similar to the EU’s GDPR force organisations to adjust how they collect and process personal data.

More many businesses, the trend of eroding democratic norms will increase the risk of governments and supranational organisations imposing arbitrary rules that economic actors must comply with. This can create unexpected financial costs, as well as operational challenges for businesses. It also creates considerable uncertainty, particularly in countries where there are differing national and local regulations in place.

Resistance by individuals to the imposition of autocratic measures not only increases the risk of disruptive and even violent public protests; it could also produce significant government instability if the unrest becomes deep-seated and widespread. There is also a threat of legal action being taken against firms seeking to comply with  controversial government directives. This may come from customers, employees, civil society organisations, and even the authorities in jurisdictions in which there are competing in-country regulations.

Regulatory uncertainty can also pose challenges for the implementation of corporate best practices, as the readiness of businesses to uphold these could also suffer. In countries with entrenched authoritarian governments, policy risks are even higher and businesses and their staff could face the imposition of restrictions to their operations and even harassment for purely political reasons. Their reputational and regulatory risks could also be heightened if authoritarian governments are subjected to international economic sanctions.

Enduring competition over territory and resources will see escalations in regional tensions posing direct risks to business resilience and operational continuity. Tensions emanating from contested spaces will continue to see businesses remain casualties of inter-state rivalries, with the selective harassment of businesses and their employees likely to endure, in particular for Western entities operating in Russia and China.

While the pandemic brought the vulnerabilities of the just-in-time supply chain to the fore, disputes in areas overlapping with key arteries of global commerce such as the South China Sea and the Gulf of Aedan will pose a significant challenge to global supply chain continuity over 2022. Competition over control of and access to resources will also drive instability for businesses, impacting market stability and undermining operational resiliency through increased prices and disruption to established supply chains.

Areas of central importance to global commodity supply such as the Gulf, West Africa and Southeast Asia will remain key risk watch areas in the year ahead. While the risk of inter-state conflict in flashpoints such as Kashmir and the Donbas remains moderate, escalations in violence and regional tensions in contested regions will undermine market stability and increase the scope for reputational and operational challenges emanating from sanctions. 

Any change in government always carries with it potential policy risks. The pressure that governments are under to undertake actions to redress the effects of the economic crisis induced by the Covid-19 pandemic means that it is likely that new administrations will continue to ramp up public spending. But equally, the need to balance public finances and reduce elevated public debt levels will likely lead some administrations to increase taxes on businesses.

In the US in particular, Democrats are already proposing increasing taxes on the wealthy and large corporations. Should they win a clear majority in the congressional elections, they are likely to push ahead with this. The risk of new corporate taxes would be heightened if political parties that have a strong commitment to combating climate change and accelerating the transition away from fossil fuels win a clear public mandate to do this through the introduction of ‘green’ or other punitive taxes on highly polluting sectors. However, should no side obtain a clear mandate in the upcoming elections, this could lead to political stasis that would be detrimental to advancing a post-pandemic economic recovery.

Separately, the election of a Eurosceptic government in France could generate significant political instability in the European Union, which would weaken the bloc’s economic performance. Meanwhile the election of a more environmentally concerned but less fiscally responsible government in Brazil would improve investor sentiment towards the country, but it could lead once again lead to a deterioration of its public finances.

Even if the world reaches the minimal threshold for global herd immunity in 2022, the most likely scenario is that Covid-19 will become an endemic disease, with governments shifting their focus from case counts to managing severe illness and disease. As a result, businesses will anticipate low-level government restrictions through the year, whilst also ensuring that contingency plans for operational resiliency remain in place.

As part of this shift towards managing severe illness and diseases, many governments will enforce vaccine mandates, and this could pose challenges for corporations in certain jurisdictions. International travel will also remain a convoluted process considering the patchwork of testing restrictions and passport apps around the world, while companies with operations in poorer countries may find their staff lack access to the necessary technology for digital passports.

Corporate decisionmakers will need to navigate a more complex geopolitical environment as the pandemic accelerates an already fragmenting global economy. Covid-19 has exposed how governments and businesses are vulnerable to global dependencies, which has fuelled political discourse on investment screening and reshoring supply chains.

Amid deteriorating US-China relations and multifaceted supply chain disruptions driving up operational costs, Western businesses will experience greater political pressure to strengthen operational resilience in their respective supply chains, particularly those in industries that governments consider part of a country's critical infrastructure. Mitigating these risks will require greater investment in supply chain technologies to reduce costs, reskill workers and ensure greater transparency and efficiency. However, some governments will invest heavily in their critical infrastructure to ensure their strategic independence, which will create new opportunities for some sectors (especially construction and technology) over the coming year.

Future government responses to mitigating epidemics and pandemics will also drive policy risks for businesses into 2022. The economic impact of Covid-19 and the inequities brought to bear on societies will drive governments to consider environmental risks that facilitate the rapid spread of disease. Growing public awareness of how certain industries and business practices amplify environmental risks will pressure governments to introduce new environmental policies and regulations that will present challenges for corporate decisionmakers.

The terror threat will continue to impact businesses and their operations in the year ahead as countries emerge from Covid-related lockdown measures and grapple with post-pandemic pressures. Crucially, the use of technology and online platforms during lengthy lockdowns in the last two years could mask the true growth of terrorist groups across the spectrum as society reopens, presenting a major challenge for even the most well-equipped law enforcement and intelligence agencies to mitigate sole perpetrator attacks.

Moreover, societies across Europe and North America are increasingly polarised, driving both far-left and far-right terrorism. Businesses are becoming more frequent casualties of such politically-motivated attacks, particularly triggered by stances on contentious and divisive issues such as racism, irregular migration and now, increasingly, vaccine policies. Public spaces including entertainment and hospitality venues, business centres and transport hubs could become vulnerable locations once again for low-sophistication terror-related incidents such as stabbings and vehicle rammings, as countries lift movement restrictions.

The extent to which the Taliban attempts to limit terrorist activities within Afghanistan’s borders will dictate whether Islamist extremists can boost their resources, recruits and regional capabilities. Failure to contain Islamic State and Al-Qaeda affiliates could lead to a gradual resurgence of more sophisticated attacks such as bombings on Western targets across central and south Asia and the Gulf. The perceived defeat of the US in Afghanistan may also inspire attacks in countries already vulnerable to ethno-religious tensions and radicalisation. Meanwhile, in the Sahel, armed conflict and state withdrawal will sustain the expansion of terrorist groups, disrupting the overland movement of goods and creating a hostile operating environment for NGOs and other businesses across sub-Saharan Africa.

Financial and physical damages will be at the forefront of concerns as businesses learn to navigate the changing environment in 2022 and beyond. Extreme weather events and natural catastrophes reportedly made 2020 the fifth most expensive year in terms of material damages, resulting in USD 81 billion in insured losses and USD 268 billion of economic losses overall. Geographically, monetary losses are estimated to have been the highest in the US, followed by Australia and Asia.

Sector wise, climate change-related financial risk was most recently underlined to the transportation and the real estate sectors in Germany and the Benelux region, with the 2021 floods resulting in an estimated USD 1.5 billion in infrastructural damage to Germany's railway network. Additionally, businesses in the agricultural sector are also projected to be disproportionately impacted, with anticipated crop losses across Central Asia in 2021 following extreme droughts highly likely to result in uncompensated financial losses for agriculture-food producers in the region.

Additionally, the tourism sector faces a high risk of a more volatile revenue streams and potentially increasing operating costs in the years ahead. The industry is vulnerable to feeling the impact of extreme weather events months and even years after an event has passed as the number of tourists will often remain depressed. Lastly, reputational and regulatory costs to businesses perceived not to be doing enough to combat climate change will increase in 2022 and beyond as governments slowly shift focus on policies aimed at meeting climate goals and mandating climate-related financial disclosures.

Public scrutiny and regulation will maintain current high levels of reputational risk across industry sectors in 2022. Global press coverage of delicate issues, from ESG to big tech regulation, will continue to be cast in a negative light. Businesses will therefore need to demonstrate knowledge, strategy and transparency around these issues to counter any damaging publicity and conciliate stakeholders. This will increase the importance of security managers working closely with legal, public relations and communications departments to prepare for inquiries and proactively mitigate the risk of exposure.

The expanding regulatory landscape is likely to increase demand on compliance departments, particularly in the areas of data privacy, environmental policies and human rights. Existing policies and procedures will need regular reviews to check for weaknesses, with businesses facing ever larger penalties for infringements. The cost of oversight will include not only fines, but also a loss of confidence from investors and creditors, as well as more attention from activists. Public interest in corporate behaviours is likely to intensify around significant events, such as the Beijing 2022 Olympic Winter Games, elections, and levying of sanctions during periods of geopolitical tension.

Conversely, some organisations will find business opportunities in the integration of ESG and global concern around climate change. There will eventually be opportunities for investment in decarbonisation, as well as vulnerability reduction for communities facing a high risk of natural disasters in poorer countries. Businesses that successfully build a foundation of strong environmental credentials in 2022 are likely to see the benefits for client loyalty, market share and attraction of talent as the global economy begins to recover from the pandemic.