Expert Session: Global Emerging Risks and Organizational Resilience

Crises have become increasingly common in the global economy, posing greater risks to business stability and prosperity. Corporations now face the challenge of keeping up with a rapidly changing risk environment. One of our members, Lockheed Martin, a Fortune 100 company specializing in advanced technology products in aeronautics, defense, energy, and telecommunications, is at the forefront of innovative risk management. They have developed a comprehensive framework that combines cross-functional risk assessments and Artificial Intelligence (AI) to enhance risk coverage.

During our recent Expert Session on Global Emerging Risks and Organizational Resilience, Christopher Geiger, Lockheed’s Vice President of Internal Audit and Enterprise Risk, shared insights into the tools and strategies employed by the company. This marks the second time we have partnered with Lockheed Martin to bring exclusive firsthand content to our members and fellows. Previously, Dr. Robert Afzal delivered a talk in November 2022 on how commercial laser technologies are shaping the future of defense.

Christopher Geiger explains Lockheed's risk strategy during the Expert Session in May.

The New Risk Environment

Geiger explained that there are three main features shaping today’s risk environment. First, societies are facing a “polycrisis,” a term coined to describe the simultaneous occurrence of multiple global challenges. This includes the interplay between the COVID-19 pandemic, the climate crisis, higher inflation, increased cost of living, the war in Ukraine, and rising energy prices.

These interconnected risks have compounding effects, with the overall impact exceeding the sum of its parts. Geiger emphasized the need to address these risks collectively, stating, “You can’t tackle just one risk and ignore the others. You must consider the interconnected situation.” The GFCC has been raising awareness about the importance of understanding crises to unlock new opportunities for innovation on multiple activities conducted through the Driving Innovation in Times of Crisis initiative since last year.

Second, the vast amount of stored data poses significant challenges to the safety and sustainability of businesses. Humanity has accumulated over 100 zettabytes of data, and companies now struggle not only to extract insights from this data but also to ensure its security. Data loss can have disastrous consequences for a company, making it crucial to safeguard and easily recover information in the face of human errors, natural disasters, or cyberattacks.

To tackle these challenges, Lockheed has developed a Dynamic Emerging Risk Program that integrates internal and external data sources over extended time horizons, ranging from one to five years or more. They employ natural language processing and sentiment analysis automation to categorize unstructured data, enabling meaningful insights.

Finally, the accelerated digital transformation is fundamentally altering how businesses perceive themselves in the market. According to a recent Deloitte survey, 94% of business leaders believe AI is critical to their success over the next five years. Embracing AI-driven strategies is inevitable, but it also introduces new risks.

At Lockheed Martin, the Internal Audit team operates within a comprehensive risk-based framework that encompasses ethics, risk management, data security, environmental safety, health, and sustainability. This framework is determined through an initial assessment of the most important priorities, considering the interests of all stakeholders.

Partnering with Sustainability

Understanding emerging risks requires simultaneously considering the near and distant future. This cannot be achieved without acknowledging sustainability as an emerging risk. Geiger emphasized Lockheed’s commitment to sustainability, stating, “Over a decade ago, we realized that achieving world-class performance in our business would necessitate tying it to sustainability.”

Lockheed has adopted the standards of Environmental, Social, Governance (ESG) as a foundational principle, integrating them with other organizational risk universes. They emphasize the importance of looking beyond climate-related risks and considering a comprehensive range of environmental, social, and governance concerns, encompassing over 13 topics.

What lies ahead

The risk framework must be continually updated and closely aligned with the business strategy. If the business strategy changes, the associated risks also evolve. Having said that, it is important to understand that risk management is different from organizational resilience. Resilience involves taking action even when a risk materializes, independent of the current strategy.

Lockheed Martin identifies a fertile ground for emerging risks due to regulatory uncertainty, stakeholder proliferation, and changes in public sentiment. In the near future, corporations may need to address these risks by investing in circular practices, considering the concept of double materiality (which acknowledges companies can have non-financial material impacts to the environment and society), and integrating additional biodiversity topics into decision-making processes and disclosures.