Geopolitical Shocks and Climate Change Will Remain Biggest Risks in 2025, Says EIU Report

"Hopes that the world will one day return to normal have been continually dashed since the covid-19 pandemic, and 2025 will be no different," the Economist Intelligence Unit (EIU) says in its Industry outlook 2025 report that explores the challenges, opportunities and trends to watch in the following six industries: energy, financial services, consumer goods and retailing, technology, automotive, and healthcare. The report further says: "Although working and travel patterns are normalizing, the economic and political outlook remains uncertain. EIU forecasts that real GDP will grow by a subdued 2.6% in 2025, similar to 2024 but slower than the average for the ten years before the pandemic." What is more, "The US economy will slow as labor markets tighten, but China's will accelerate slightly, amid stimulus and reviving trade. Those of the EU and Japan will also tick up, but only smaller developing markets such as India will deliver significant growth."

Geopolitical tensions and trade barriers will force more shifts in supply chains, amid subdued business growth. The EIU also presents the following predictions for 2025:

• Inflation is expected to ease, allowing for further monetary easing.
• Prices for agricultural and energy commodities will fall, but those for industrial raw materials will rise.
• Geopolitical risks will persist amid wars in Ukraine and the Middle East, while rising trade barriers between the EU, the US and China will reshape supply chains.
• Climate change will increase geopolitical tensions. National climate pledges will be updated at COP30 in November 2025, but much will depend on US leadership.
• Investment in technology, especially artificial intelligence (AI), will remain strong, but tech companies will face regulatory pressures, investor impatience and scrutiny over energy usage.

According to the EIU, "Falling inflation will allow monetary easing to continue. We expect the Federal Reserve (Fed, the US central bank) to cut interest rates by a further 50 basis points during 2025. We also expect prices for agricultural commodities and industrial raw materials to move in different directions in 2025- 26. Although agricultural prices will continue to trend downwards, prices for industrial raw materials will rise again, particularly for base metals that benefit from the green transition. As for energy commodities, prices will fall on average, but remain at risk from political shocks."

The UK-based company provides the following key global forecasts for each sector covered by its report:

• Energy: Fossil-fuel markets will continue to face geopolitical risks amid conflicts in the Middle East and Ukraine, but investment into renewables will remain strong, particularly in China.
• Financial services: Falling interest rates will weigh on bank profit margins, leading to lower dividend payouts, but the Basel III endgame will be eased or delayed further.
• Consumer goods and retailing: Global retail volumes will expand by 2.2%, helped by disinflation, but regulations around online retailing will tighten further, particularly for high-volume low-price Asian retailers such as Shein and Temu.
• Technology: More countries will start using satellite internet, but use cases will be limited to enterprise clients—military and maritime. Amazon's Kuiper will disrupt the market duopoly of Starlink and EutelSat OneWeb.
• Automotive: After a difficult few years, annual new-vehicle sales will reach a record 97.2m units in 2025. We forecast that sales of new cars will rise by 2%, commercial vehicles by 4% and electric vehicles by 16%.
• Healthcare: Global healthcare spending will outpace inflation, growing by 1.9% in real terms. The World Health Organization will make climate change the focus of its 14th four-year general program, which starts in 2025.

Companies and investors alike should take note that geopolitical shocks and climate change will remain the biggest risks in 2025. The EIU's "baseline forecast assumes that another large-scale war will not break out in Asia or the Middle East. However, the continued threat of geopolitical conflict, in addition to the continuing war in Ukraine, will lead to economic reconfiguration and policy divergence." Moreover, "The EU and the US are already raising barriers against Chinese exports in areas from  automotive and technology to healthcare. Chinese retaliation is likely to intensify in 2025 as rival blocs emerge across the world. These trends," according to the report's authors, "will reshape supply chains over 2025, and could upend our forecast of falling commodity prices and inflation."

Regarding climate change and how efforts to mitigate it will play in these political rifts, the report notes that "At COP30 in November 2025 governments are due to update their national climate pledges (NDCs), but much will depend on US leadership. The debate over environmental, social and governance (ESG) reporting will intensify as regulations enforcing disclosure come into effect in the EU and elsewhere." In addition, "EU climate regulations, due to come into force from 2026, will also have an international impact on trade by forcing multinational companies to monitor their supply chains."

While investment in technology, particularly AI, will be strong as projects gather pace, "technology companies will face pressure from several directions as regulations tighten (particularly in Europe), investors become more impatient for profits and their energy usage comes under more scrutiny." I agree with the EIU that "Companies will need to navigate these new requirements, while also trying to reconfigure their supply chains and seek out areas of growth."

What challenges, opportunities and trends are you watching as we celebrate the beginning of 2025?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

SBA's Guide Aims to Help Businesses Plan and Recover From Disasters

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Small and medium-sized businesses are focused on solving a problem for their customer by providing a service or product of the highest quality. While most businesses are focused on growing their sales, too many are not prepared for how an immediate disaster like a hurricane, earthquake, unseasonably cold weather or a pandemic can adversely impact their operations. A new document shows how these risks could disrupt business operations and planning for them will enable owners to rebound quicker and avoid a recurrence.

In announcing the launch of its Business Resilience Guide, the U.S. Small Business Administration (SBA) says its publication serves as "a comprehensive resource for small business owners who may not be familiar with disaster preparation." The government agency whose mission is to help power the American dream of business ownership, adds that its "guide, which has six sections to plan and recover from disasters, includes best practices and template forms to help mitigate disasters for America's entrepreneurs and help them build back stronger."

The SBA's Guide correctly points out that "[w]hen disaster strikes, even the best run businesses can be impacted. According to the Federal Emergency Management Agency, about 25 percent of businesses do not reopen after disasters. Some businesses can cope with adversity better than others – they are less disrupted by an event, resume operations sooner, recover faster, and adjust for the future based on their experience. These businesses are described as resilient."

What is more, "For a small business, being resilient involves understanding risks, planning for them, identifying employee needs and responsibilities, and ensuring back-ups and redundancies are in place. This Guide can help small businesses determine how to anticipate the impacts of a disaster on operations so disruptions can be minimized."

SBA's publication leads business owners through creating a robust resilience plan, covering crucial areas such as:

• Understanding their current landscape: This involves documenting essential operations and identifying dependencies.
• Identifying key partnerships: It is crucial for seamless business continuity to recognize and nurture relationships with important vendors, suppliers, and collaborators.
• Safeguarding vital resources: The guide emphasizes the importance of data backup, cybersecurity measures, and infrastructure protection.
• Strengthening financial readiness: Strategies for managing cash flow, securing emergency funding, and minimizing financial losses.
• Embracing proactive mitigation: This section delves into strategies for minimizing the impact of potential disruptions through risk assessment and mitigation tactics.

The last section on embracing proactive mitigation also includes an overview of the SBA's post-disaster lending programs that can help business owners mitigate the effects should their business be impacted by a disaster. "SBA loans can assist with expenses related to the repair or replacement of property and can provide support for essential business operations in the aftermath of a declared disaster. These low-interest subsidized 30-year loans have 0 percent interest for the first year as well as deferred payments for the first year after the loans are disbursed."

The Guide also mentions how the SBA "offers a mitigation option as part of the post-disaster loan program that enables a property owner to increase their physical disaster loan by up to 20 percent of the verified loss (or a maximum of $500,000) to pay for interventions that will make a property more resilient in the future. Mitigation reduces a property's risk of damage from future events so people can return to their home or business more quickly after a disaster. The section on embracing proactive mitigation also includes multiple examples of hazard mitigation efforts at different price-points."

Do you find SBA's Guide useful to help your business plan and recover from disasters? What would you add?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

Growth Is Proving Surprisingly Resilient in the Face of High Interest Rates and Geopolitical Risks, Says EIU Report

In its latest global economic outlook report, the Economist Intelligence Unit (EIU) "forecasts more fragmentation and regionalization in the world economy in 2024-28 as alliances tighten and competing blocs form." What is more, "The return of industrial policy, including sanctions and the provision of new incentives, will push firms to adopt more inefficient supply chains, stoke trade tensions in strategic sectors and make it difficult to compete across the global marketplace. These developments will drag on growth potential." The EIU expects "global real GDP will expand by 2.8% a year on average over the next five years—below the 3% of the 2010s, which was hardly a stellar decade for the global economy."

The UK-based organization adds that "In the near term, however, the global economy is showing resilience in the face of international conflict and higher interest rates. This mainly reflects the remarkable strength of the US economy, which is driven by strong household finances, a rising trend in manufacturing investment and a booming technology sector. Elsewhere, the picture is less dynamic but short of a downturn." Moreover, "Momentum in Europe will build gradually in 2024. Modest government stimulus in China is helping the economy to in the Middle East as the conflict in Gaza continues. Russia's invasion of Ukraine, now in its third year, shows no sign of resolution. Flash points in Asia, such as in relation to the South China Sea and Taiwan, will pose a persistent threat to the fragile stability that has developed in US-China relations. The diffusion of global power and uncertainty over the direction of US foreign policy underpins this rise in geopolitical risk."

Other key findings from the report include:

• 2.5% global real GDP growth in 2024 (compared with 2.4% previously), meaning growth will be unchanged rather than slowing from 2023. Growth is proving surprisingly resilient in the face of high interest rates and geopolitical risks.
• The change in global growth reflects another upward revision for US growth in 2024 to 2.2% (from 2% previously), upward revisions for several European economies that have pushed euro area growth to 1% (from 0.8%) and an upward revision for Brazil to 2.1% (from 1.8%).
• Reduction of expectations for future monetary policy loosening, removing one 25-basis-point cut from the loosening cycles of both the Federal Reserve (the US central bank) and the European Central Bank in 2024-25. In contrast, the EIU now expects the Bank of England (the UK central bank) to cut quicker than previously forecast, lowering its rate to 3.5% by end-2025 (compared with 4.25% previously).
• The US dollar effective exchange rate is now forecast to appreciate for a third consecutive year in 2024—the EIU previously expected a mild depreciation. This reflects a stronger depreciation in the yen's value than previously forecast and the fact that the EIU is no longer forecasting euro appreciation.

On the topic of how climate change and AI may threaten global convergence prospects, the report says:

The green transition and technological change will be among the major trends shaping global economic prospects over the next five years. In both cases, they seem set to diminish convergence prospects for developing economies. Poorer countries will be disproportionately affected by climate change and will struggle to secure financing to mitigate its impact. Although we are skeptical about the scale of productivity gains from artificial intelligence (AI), those improvements that do emerge will accrue mainly to developed economies; this will create challenges for countries aiming to move up the manufacturing and services value chains. We still expect some emerging markets to stand out, however, helped by being fairly insulated from geopolitical tensions and rising trade barriers. India is forecast to expand the fastest of any major economy in 2024-28, and Mexico will benefit from nearshoring trends.

Do you agree with the report's findings? How are you preparing your business for a rise in geopolitical risk?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

Report Provides Recommendations on How to Achieve Enduring Board Effectiveness

While drafting a post on this forum about a report published by EY that provides recommendations on how boards of American companies can confront crisis and embrace opportunity, I found another report produced by the consultancy that provides "a comprehensive approach and framework for understanding and enhancing board effectiveness."

Authored by Kris Pederson, EY Americas Center for Board Matters Leader, this report presents a framework comprised of "a series of elements that must be intact for board performance to flourish. Two of these are foundational 'effectiveness' pillars that guide the work to be done by the board. These flow through five 'systemic' layering elements that embody the board's operating environment." She adds that "With a strong mission and engagement model supported by effective information practices, boards have a solid foundation for effective performance. The systemic board governance elements encompass the operating model and principles of an effective board."

According to Ms. Pederson, the first pillar of board effectiveness, board mission and engagement model, "The board's fundamental mandate is to provide insight, foresight and oversight on mission-critical issues that drive the company's governance as it advances its strategy, operations, financial performance, and stakeholder engagement to drive long-term corporate value. Guiding this mission are the board's own values.

Evidence of an effective board mission and engagement model includes:

• The board's corporate governance guidelines articulate the board's purpose, values and core engagement strategy and practices.
• Every board member can consistently state the board's mission and the company’s purpose, strategy and long‑term value proposition.
• Board members and management are in clear agreement about the mission‑critical company issues that demand board oversight. Each board member individually embodies core traditional leadership values and skills, including ethics and integrity, diligence and conscientiousness, executive‑level communication skills, and a commitment to progress.
• There is clarity as to the company's core policies, strategies and risk management approaches, and when and how the board engages to oversee them.

Regarding the second pillar of board effectiveness, information infrastructure, Ms. Pederson explains that "Effective boards are rooted in the diligent design and maintenance of reliable and efficient information practices that provide timely access to the highest-quality information and people (e.g., advisors, stakeholders, customers) needed to identify, illuminate and address evolving mission-critical issues." Moreover, "Boards should be specific with management about their information needs so that management is not overburdened with immaterial questions and potentially driven to expand board materials to include tangential information or excessive detail."

Evidence of effective board information infrastructures include:

• Board meeting materials include a cover memorandum that succinctly describes in a clear narrative form all items on the board agenda.
• Technical documents, such as financial reporting, equity compensation plans, merger agreements or other material contracts, are fronted with a one- or two-page (max) executive summary of material terms.
• All board materials are presented with draft resolutions clearly specifying the matters the board or its committees are being asked to act on.
• Boards and management are diligent about how they engage with each other to share information, respecting established communications channels and security issues.
• Neither the board nor management feels unduly overburdened with information overload or requests for information, respectively.
• The board regularly hears perspectives from third parties on critical issues and complex matters.

With respect to "Board composition, structure and leadership," the report notes that "Making effective determinations about the competencies, backgrounds and experiences needed on the board is key to building a strong board, keeping in mind that diversity across multiple dimensions is essential to board effectiveness."

Moreover, "Based on an understanding of the companies' strategies and emerging mission-critical issues, key stakeholder demands, and increasing regulatory scrutiny of board effectiveness, boards

should develop and maintain, in collaboration with senior management, a competency map (or board skills matrix) that identifies and scopes the skills and type of experience needed on the board. This analysis, which should have a forward-looking orientation, enables a more accurate and objective determination of effective board composition, size and committee structure."

Evidence of effective board composition, structure and leadership include:

• The board maintains, in collaboration with management, a detailed board skills matrix in assessing board size and composition.
• The board's corporate governance guidelines and committee charters clearly allocate roles and responsibilities between the board and its committees, including mission-critical issues such as strategy, risk, culture, compliance, technology, cybersecurity, and climate change.
• Board members periodically move across different committees, and committee structure and composition are reasonably fluid based on the company's needs.
• Committee chairs regularly collaborate on the most effective ways to govern overarching board responsibilities relating to strategy, risk and long-term value.
• Board and committee oversight responsibilities are periodically revisited as business environments and priorities shift.
• Committee chairs report to the board when they need additional resources, refreshed competencies or workload reallocation.

Regarding board dynamics, Ms. Pederson explains that "A positive board dynamic is one of the most critical elements in achieving board effectiveness. Many also believe that consistently maintaining a positive board dynamic can be challenging. For this reason, all board members, especially board leadership, need to work to nurture and consistently demonstrate respect and trust for each other." She adds that "Without a culture of respect and trust, boards cannot engage in constructive debate and instead devolve quickly into dysfunction. In their discussions and deliberations with each other, at meetings and informally, all board members should show evidence of their commitment to the board's mission, values and engagement model through active, informed and productive engagement."

Evidence of effective board dynamics include:

• Director participation at meetings is balanced: No single director or group of directors dominates agenda formulation, discussions or deliberations, and no single director or group of directors is passive or disengaged.
• If interviewed, each director would state that he or she felt included, heard and respected, and that all members demonstrate respect and trust.
• There are no "camps" or "factions" among board members or among board members and management.
• Directors say something when they see something, and the board takes appropriate action.
• The board engages in informal ways between meetings to enhance trust and build personal connections.

On the topic of board decision-making, the report says "Boards should be highly conscientious and intentional about when and how they make decisions. Leading boards develop a process to support effective decision-making, based on applicable state and relevant laws and the board's mission and engagement model.

Ms. Pederson adds that "For every matter before them, boards should question and assess how well the decisions they may make align with the company's purpose, culture, strategy, risk tolerance profile, and sustainability goals. Boards need to spend the time, access appropriate resources and consider alternative scenarios and outcomes before making final decisions."

Evidence of effective board decision-making include:

• The board and management maintain a delegated authority matrix, specifying corporate business matters that require board decisions.
• The board maintains a checklist of approval requirements in its organizational documents and under relevant law.
• The board chair establishes appropriate transparency around director voting by discouraging informal decision-making discussions and overseeing that the board's books and records are in order.
• The board does not make decisions without sufficient considerations about the quality of the information, timing, and risks and rewards.

As for the final element on systemic board governance, "Board outcomes and evaluation," Ms. Pederson points out "The ultimate outcome of a high-performing board is reflected in the success and prosperity of the business itself. A board should see the evidence of its efforts manifest in company financial performance, including growth through the innovation it fosters and cost reduction from the risks it helps the company avoid."

She importantly adds that "Indeed, investors, regulators and other stakeholders are seeking greater board effectiveness and are increasingly interested in board evaluation processes and results. The final component in the pyramid," according to Ms. Pederson, "includes a board evaluation process that not only results in a more effective board, but also leads to investor trust."

Evidence of effective board outcomes and evaluation include:

• The board, its committees and each director conducts a self-evaluation annually, enhanced by third-party facilitation when needed.
• The evaluation process results in the identification of concrete actions the board agrees to take within a specified period to enhance effectiveness through the achievement of specific milestones.
• The board's collective competencies map to the company's strategic and technical needs.
• The company's disclosures around the board evaluation process enhance trust in the board.

Ms. Pederson's report concludes with the following:

A highly effective board of directors is a great asset to a management team and a critical component of company success. Our experience finds that boards must deliberately manage the board effectiveness pillars to be certain they are working on mission-critical elements of the business and procuring the right information to drive decisions. Also, high-performing boards carefully address each element of the systemic governance framework to establish the use of an optimized approach that directly drives board value.

Questions for the board to consider:

• How does the board evaluate whether management is "living" the company's purpose and values as described in the company's code of business conduct and ethics?
• How does the board engage with management in rigorous ongoing analyses of material and mission-critical growth drivers, risks and opportunities?
• How can board materials evolve to include narrative stories that explain matters being presented to the board as well as practical dashboards, graphics, data, and key performance indicators?
• On mission-critical issues, how does the board diversify its information sources beyond management by engaging with independent advisors to broaden its perspective?
• Do the board's corporate governance guidelines provide clear standards for director qualifications, continued service, tenure, and removal?
• Has the board discussed using additional committees to address expanding board or committee roles and oversight responsibilities, particularly around risk, technology, cybersecurity, climate change, human capital management, and material ESG matters?
• Does the board calendar make sufficient time for board engagement with management, key investors and other stakeholders, and independent advisors?
• Is every director consistently prepared for board and committee meetings, as demonstrated by his or her engagement and contribution? And if not, how is that feedback provided?
• Is the board effectively managing and leveraging diversity in backgrounds and perspectives? Is there sufficient diversity in views to promote progress in the board's mission?

What are your recommendations for how to achieve enduring board effectiveness?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

How Corporate Boards Can Confront Crisis and Embrace Opportunity

As we enter into 2024, the world is experiencing conflicts in a multitude of countries and these conflicts are having an adverse effect on global trade, which in turn, impacts global financial markets. As EY, a consultancy, says in its report on how boards of American companies can confront crisis and embrace opportunity, "Dynamic global crises continue to challenge companies, with the escalation of conflict in the Middle East, the war in Ukraine, geopolitical complexities related to China, and an uneven global economy creating a sense of permanent crisis on a multitude of fronts." 

The multinational consultancy adds: "At the same time, exceptional growth opportunities seem at hand. Generative AI (GenAI) represents a groundbreaking leap in technology with the potential to increase productivity and transform work, business models and society. Further, the continuing energy transition demands a reframing of business strategy to mitigate risks and thrive in a low-carbon economic future."

Moreover, "In this context of crisis and opportunity, directors are deepening their engagement. They are guiding companies to build resilience by considering multiple alternative scenarios and carefully balancing discipline and transformation."

Below are the key findings of each chapter of the report with recommended actions for boards and questions a board should be asking (the recommended board actions and questions are copied verbatim):

CHAPTER 1: STAY AGILE AMID CONTINUED ECONOMIC UNCERTAINTY

The report's first chapter focuses on how to stay agile amid continued economic uncertainty. The chapter's key point is boards should enhance oversight and flexibility as uncertain economic conditions persist. "Global economic activity remains subdued heading into 2024, with rising geopolitical tensions and tightening financial conditions as key risks. As the year begins, companies can expect slower business and consumer spending, along with softer labor market conditions and still-elevated costs." Furthermore, "Companies must navigate an ever‑shifting landscape of geopolitical and economic uncertainty. To do so, they will need to build resilience and agility in their operations."

What boards should do in 2024:

• Embrace agility and oversee flexible strategic planning that incorporates dynamic multi-scenario planning. Boards have an opportunity to guide management, pressure-test plans, and assess multiple options for achieving strategic goals in the current operating environment. Directors should ask what economic, financial and customer demand scenarios have been considered and what the potential impacts are on financial performance, growth and strategy.
• Confirm how the board will receive timely updates about macroeconomic developments that could impact the company. The board is a strategic resource to the management team in preparing for different economic scenarios and thus needs timely and relevant information from experts beyond the management team to do this effectively. This information should directly inform scenario planning.
• Help management focus on the long term. This will be important as the company considers how to adapt to potential economic deceleration and various challenging geopolitical developments. For example, the board can oversee how productivity, training and efficiency gains can offset higher labor costs. The board can also encourage capital strategies that position the company to thrive as broader technology and sustainability trends continue to reshape the business environment.

Questions for the board to consider in order to enhance oversight and flexibility as uncertain economic conditions persist:

• How is the company planning for a range of economic scenarios, including those in which geopolitical developments keep inflation elevated, and potentially rising, for longer?
• How often does the board ask leadership: "What if we’re wrong?" How is the company considering what it would do differently if a low-probability, high-impact scenario was to emerge?
• What is the company doing to stress-test its balance sheet and develop and test a crisis playbook that gives company leaders comfort in their ability to manage through even the worst‑case scenario?
• How is the company developing a resilient strategy around pricing, capacity management and location, and distribution that is nimble enough to navigate a world where demand will ebb and flow more significantly than in the past few decades? How is scenario planning supporting that strategy?
• How is the company evaluating costs, investments and decisions in the context of its long-term strategy, especially regarding technology, talent and the energy transition?

CHAPTER 2: BALANCE DISCIPLINE AND TRANSFORMATION IN CAPITAL STRATEGY

Focusing on how to balance discipline and transformation in capital strategy, chapter two of the report discusses how to adapt strategic priorities to a slower-growth environment. According to EY, "A mantra for many leadership teams this year will be financial discipline. Growth at any cost has given way to investments that must show a clear path to profitability or value creation. Still, companies cannot afford to retrench." In addition, "Companies cannot afford to let financial caution prohibit necessary investments for long-term growth, such as those related to technology and sustainability."

What boards should do in 2024:

• Encourage accelerated investment for long-term growth and competitiveness. Boards must keep the long term in view for management so that companies do not miss out on innovations or avoid tough decisions that will be necessary to stay competitive in a future that will look very different from the past.
• Enable management to maximize profitability and position for business model transformation. Challenge how management is identifying opportunities for cost management, tracking the progress on investment decisions and considering how markets could evolve and impact the use of capital in existing and potential businesses. Probe how internal rationalization, cost cutting and divestitures can fund future transformation.
• Promote enhanced communication with investors about the company's capital strategy. Capital allocation can be a key area of focus for activist investors, and a bear market leaves companies more exposed at a time when investors are less forgiving. In an environment of heightened shareholder activism, boards can help challenge whether companies are doing enough to communicate the company's strategy narrative proactively with shareholders.

Questions for the board to consider to facilitate the balancing of discipline and transformation in capital strategy:

• How is the company optimizing its capital management and reducing direct and indirect costs through an era of continual change? How is it considering internal cost cutting as potential funding for ambitious transformation?
• How is the company investing to mitigate risk and create long‑term growth opportunity despite multiple headwinds? Is it maintaining the right balance of innovation and capital strength?
• How is the board defining its role as stewards of investor capital? Does that role include positioning the business to thrive as the world evolves?
• How is the company's capital investment strategy changing in areas such as digital and technology, people and skills, innovation and research and development (R&D), and sustainability? How are board committees coordinating their oversight of these matters?
• What types of transactions (e.g., M&A, divestment, new joint ventures or strategic alliances) is the company considering to achieve its strategic goals? Are those options explored at the board level or is the board presented only with management's decision?
• How is the company's investor engagement program keeping key shareholders informed of the company’s long-term value creation strategies and the board’s related expertise? Do disclosures describing the board’s composition demonstrate that, individually and collectively, the board is fit for purpose?

CHAPTER 3: EMBRACING CYBERSECURITY AND DATA PRIVACY AS STRATEGIC ADVANTAGES

The next chapter of the report addresses the importance of embracing cybersecurity and data privacy as strategic advantages. Emphasizing how companies should broaden cybersecurity and data privacy beyond compliance, the report points out that "While cybersecurity and data privacy are perennial concerns for boards, they include a complex set of always-evolving drivers, and background knowledge that can quickly stale. 2023 saw a variety of different changes in the cybersecurity landscape, such as the quick adoption of new technologies, new geopolitical influences, new regulatory requirements and increasing nation‑state bad actors." What is more, "A more complicated environment will likely cause many organizations to mature their cybersecurity oversight through 2024."

What boards should do in 2024:

• Reconsider whether cybersecurity oversight is structured the right way. The new SEC disclosure rules may be a good opportunity for the board to reconsider whether it is structured appropriately to oversee cybersecurity in the years ahead. To do so, it may consider adding (or removing) a focused committee, concentrating or distributing cyber expertise throughout the board, changing the cadence of cyber discussions, or otherwise altering the board agenda.
• Participate in complex cyber threat tabletop exercises. These can be done either separately or with management, and complex cyber exercises can be incorporated into the board calendar. These scenarios should be varied and dynamic. Although it may be unlikely that a specific scenario will be replayed in real life, the simulation can develop the board’s muscles for dealing with a challenging crisis; pressure-test existing playbooks, discussing policy such as whether the company will pay ransoms; and uncover opportunities to improve processes and procedures.
• Maintain a wide variety of voices in the boardroom. In addition to members of the cybersecurity team, directors may seek a variety of voices, ranging from operators and internal audit to HR and strategy, to understand the company's preparation that extends beyond threat and response to data privacy and ethical data usage. This can give insight into how the company’s cyber risk appetite is being applied and whether the cyber risk culture meets expectations. Further, complexity can be a barrier to effectively combating cyber threats. The board may ask management teams to consider how IT security systems can be simplified.

Questions for the board to consider to embrace cybersecurity and data privacy as strategic advantages:

• How has management adapted the cyber response playbook to the threat environment that continues to evolve?
• Have appropriate and meaningful cybersecurity and data privacy metrics been identified and provided to the board on a regular basis, and have dollar amounts been assigned to these risks?
• What is the state of the organization's cyber risk culture? How can the organization minimize employees' susceptibility to online manipulation and deceit?
• What information has management provided to help the board assess which critical business assets and partners, including third parties and suppliers, are most vulnerable to cyber attacks?
• How does management evaluate and categorize identified cyber and data privacy incidents and determine which ones to escalate to the board?
• How does the organization use data to build and maintain trust with stakeholders, such as employees, customers, suppliers and investors?
• What controls are in place for ethical usage of technology to promote stakeholder trust and data privacy?
• Has the board participated with management in one of its cyber breach simulations in the last year? How rigorous was the testing?
• Has the company leveraged a third-party assessment to validate that the company's cyber risk management program is meeting its objectives? If so, is the board having direct dialogue with the third-party related to the scope of work and findings?

CHAPTER 4: GUIDE RESPONSIBLE AND TRANSFORMATIVE INNOVATION AND TECHNOLOGY

The fourth chapter of EY's report addresses the importance of guiding responsible and transformative innovation and technology by enabling the company to innovate in a way that is both revolutionary and ethical. "GenAI is only one of many emerging technologies that is already impacting business in expected and unexpected ways. Other technologies and innovations include the metaverse, Internet of Things, Web3, and quantum computing. These advancements will transform the work organizations do and the environment in which they operate." The report further asserts that "GenAI's appeal puts pressure on management to take advantage of its potential for strategic advantage before their competitors do, or risk falling behind."

What boards should do in 2024:

• Strengthen management accountability for responsible AI. Boards are in a strong position to make sure that management teams are creating responsible AI policies that effectively manage the risks and capitalize on the opportunities available for the enterprise while keeping the company's values and purpose as a north star. It is not enough to require that policies are in place. Boards should go further to push management to ensure that employees adhere to such policies, that there is a mechanism to determine if they are not and that managers are quickly fixing problems.
• Embrace a range of perspectives and experiences in the boardroom. Directors with a wide variety of professional and lived experience are increasingly important to help drive innovation and govern emerging technology. This diversity enables the board to better identify nontraditional threats and encourage management teams to responsibly leverage new technologies and innovations. Further, a variety of perspectives from within the boardroom fosters an environment that facilities robust discussion, allowing key assumptions and conclusions in strategy, operations and other areas to undergo thorough pressure testing.
• Gain visibility into external trends and internal capabilities. An intentional approach to understanding the trends likely to impact the company over the long term is critical for a "future‑back" approach to strategy. This strategy approach envisions possible future scenarios and then works backward to identify the strategic objectives in order to ensure the company is viable in that future. Further, working to understand the company's internal capabilities by going beyond C-suite presentations through hands-on experience and R&D visits can help the board better evaluate how management is placing bets across the enterprise.
• Build agility into the decision-making process. The pace of innovation is fast and may only get faster. A traditional board meeting cadence — four to six full board and committee meetings a year — may be insufficient to support the needs of the company. Boards should work with their management teams to consider a more flexible trigger-based approach to strategic planning that entails a more consistent evaluation of the future. At the same time, boards may gain value by looking inward to consider the current structure for overseeing innovation and emerging technology. Confirming that the board’s structure remains fit for purpose is critical to making sure the board does its best to support innovation and emerging technology.
• Investigate innovation in the boardroom. The board may start to consider the ways in which innovations such as GenAI can improve its own work. GenAI may be able to support boards by summarizing large and complex board materials, more efficiently schedule time for board and committee meetings, and provide background and learning curriculum for new and emerging boardroom topics.

Questions for the board to consider to enable the company to innovate in a way that is both revolutionary and ethical:

• What is the company's path to value with GenAI and other technologies? How are the risks identified and managed?
• What policies has the company implemented to confirm that GenAI is used responsibly? How does management know they are working?
• How is the company's innovation budget and program contributing to the creation of an informed strategic plan leveraging emerging technology?
• How is the board thinking about and redefining competitors or industry boundaries? Who might now be a competitor but wasn't previously?
• How are responses to changing stakeholder demands, expectations and operational disruptions leading management teams to innovate?
• How are investments in innovation tracked and reported to the board? Is the board engaged in innovation discussions as part of the strategy-setting process?
• How is the board building a foundational understanding of evolving technologies, including learning through hand-on demonstration and experience? How will companies create an ecosystem in which AI and data protection coexist and create synergies to generate a better value proposition for users and customers?

CHAPTER 5: ENABLE A PEOPLE-CENTRIC WORKFORCE STRATEGY

Chapter five of centers on enabling a people-centric workforce strategy by guiding talent engagement and cultivation amid a rebalancing of power and a reimagining of work. "The talent landscape is constantly being disrupted by a combination of cyclical and structural forces. This has led to a divergence in perspectives between employers and employees." I agree that "Employers may be underestimating the fluidity of the labor market." As the report explains: "While 57% of employers believe that a more challenging economic climate would reduce employees' likelihood of seeking new jobs, the survey found that a significant 34% of employees expressed their willingness to leave their current jobs within the next 12 months. This highlights the importance of talent availability, acquisition and retention. For directors who view talent as a top priority in 2024, 77% said these topics were most important."

What boards should do in 2024:

• Seek a deeper view into employee sentiment and perspectives by hearing from employees more directly. Boards should actively engage with the chief human resources officer (CHRO) and seek direct input through tools such as pulse surveys and interactions with front-line employees. This approach enables boards to hear employees' voices directly and fosters a culture of inclusivity and engagement.
• Guide management to put people first in workforce strategy and cultivate a culture of trust. This involves boards evaluating the leadership team and their incentives to energize and inspire employees, ultimately gaining their trust. Additionally, boards should oversee how management implements workforce re‑skilling and training initiatives to prepare the workforce for future challenges, while actively involving employees as partners in that transformative journey.
• Enhance stakeholder communications around compensation committees' oversight of human capital matters. With potential new SEC rules and heightened attention on high-profile strikes, stakeholders will scrutinize the board’s role in governing the talent agenda. Investors will seek to understand whether the compensation committee or full board has a meaningful impact on shaping a resilient talent strategy.

Questions for the board to consider to guide talent engagement and cultivation amid a rebalancing of power and a reimagining of work:

• How does the company's talent strategy advance its overall strategy? What changes have been made to other elements of the business to advance the talent strategy?
• How is the company identifying and addressing employees' chief areas of concern?
• How is the company's leadership team earning trust with employees? Do the company's employees feel connected, inspired and well-informed at work? Do they feel that leadership cares about them as people?
• How often is the board engaging directly with the CHRO or equivalent and what is the substance of those discussions? How is the board getting a direct line of sight into employee perspectives below the executive level?
• What human capital management metrics are the board or compensation committee reviewing? How do those metrics align with the long-term talent strategy, and what narrative is the company communicating to stakeholders about its talent agenda?
• How is the company providing support for career path and progression, including mentoring, learning and development programs, and updating organizational design to open opportunities for advancement? Are upskilling and retention central to the company’s talent strategy, including key areas such as technology and sustainability?
• How is the company making the use of AI compatible with talent development so that the company’s strategy can adapt quickly to the constantly changing business ecosystem?
• How is the company approaching in-office, fully remote or hybrid working models and maximizing the human experience of work in its talent strategy? How is the board getting insight into employee sentiment related to hybrid and remote working across different job functions, geography, age and gender?

CHAPTER 6: KEEP OTHER FOCUS AREAS ON THE BOARD AGENDA 

With the thesis of balancing top priorities with additional imperatives, being careful to not overwhelm the board agenda, the report's sixth chapter addresses the importance of keeping other focus areas on the board agenda. "The board's priorities for 2024 are not the only areas of risk and opportunity that boards will need to address this year. There are other business imperatives to consider in the year ahead" such as keeping pace with regulatory developments, guiding political considerations, overseeing supply chains as strategic assets, and addressing climate change and environmental stewardship.

Questions for the board to consider 2024:

• What systems and processes are in place to monitor international and domestic legislative and regulatory developments and keep the board informed as appropriate? How is management taking prudent action now to prepare for future regulation as appropriate?
• How is the company ensuring visibility across global supply chains and considering alternative suppliers to improve resilience to shortages or price volatility? Is it evaluating supplier relationships for potential geopolitical complications and exploring alternative networks tuned to the new geostrategic environment?
• Does the company view climate- and nature-related initiatives as a means of protecting and creating more value for the business?
• How is it exploring opportunities to transform its business portfolios while reducing emissions?
• How is the company engaging and supporting suppliers to influence emissions reduction through their supply chains? Has the company considered a strategic partnership or joint venture to help achieve its climate agenda?
• How well do management and the board understand how geopolitical developments affect current and future strategy? Is scenario planning used to explore multiple plausible futures and their potential business implications systematically?

GOING FORWARD IN 2024: ENHANCING THE BOARD'S STRATEGIC VALUE

EY concludes its report noting that "In 2024, boards will need to enhance their strategic value by enabling resilience through discipline and transformation. They must guide management to balance short-term demands and long-term growth and support the organization as it confronts crisis and embraces opportunity."

Moreover, "While cyclical changes such as inflation and consumer spending require attention and may present tactical opportunities, it is structural changes such as the GenAI revolution, geopolitical fragmentation and the energy transition that are significantly impacting strategy and raising the stakes for businesses and society. Effective boards will provide valuable insights, effective challenge and leadership to enable companies to make agile decisions aligned with their values in this turbulent environment."

In the report's introduction, EY notes that its "2024 board priorities relate to near-term issues (e.g., economic uncertainty and the cost of capital) as well as longer-term priorities (e.g., innovation and workforce development)." I agree that "A crucial role of the board this year will be guiding management in balancing what is urgent to address now with what is vital to invest in for the future." How is your business balancing the urgent matters that need address now with investing in vital initiatives for a sustainable future?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

How Geopolitical Tensions, New Technologies, and Environmental Threats Could Upset the Economic Outlook for 2024

Though the Economist Intelligence Unit (EIU) expects modest global growth in 2024, continued monetary tightening, supply chain disruptions and geopolitical conflict could weigh heavily on the global economy next year. In a report that explores how geopolitical tensions, the advent of new technologies and persistent environmental threats could upset the outlook in the coming year, the EIU explains that its "operational risk scenarios evaluate the events that could have a severe impact on its core economic and geopolitical forecasts, challenging the operations of businesses worldwide." For example, "In 2023 resilience among consumers and a gradual fall in inflation reassured uneasy investors and supported modest global growth." The EIU expects "stable, but unspectacular, global growth to continue into 2024 as economic uncertainty recedes and major central banks begin to lower policy rates in the second half of the year. The UK-based organization's report "explores how geopolitical tensions, the advent of new technologies and persistent environmental threats could upset the outlook for 2024."

Below are ten risk scenarios that could reshape the global economy in 2024:

1. Monetary policy tightening extends deep into 2024, leading to a global recession and financial volatility (moderate probability; high impact)
2. A green technology subsidy race becomes a global trade war (moderate probability; high impact)
3. Extreme weather events caused by climate change disrupt global supply chains (high probability; moderate impact)
4. Industrial action spreads, disrupting global productivity (high probability; moderate impact)
5. China moves to annex Taiwan, forcing a sudden global decoupling (low probability; very high impact)
6. A change in the US administration leads to abrupt foreign policy shifts, straining alliances (moderate probability; moderate impact)
7. Stimulus policy failures in China lead to increased state controls and diminished growth prospects (low probability; high impact)
8. The Israel-Hamas war escalates into a regional conflict (very low probability; high impact)
9. Artificial intelligence disrupts elections and undermines trust in political institutions (moderate probability; low impact)
10. The Ukraine-Russia war spirals into a global conflict (very low probability; very high impact)

While business leaders should be mindful of the ten risk scenarios, there are three that I am watching closely. As someone who follows the green technology sector, I have concerns about how a subsidy race could turn into a global trade war. As the EIU explains: "Western economies are rolling out generous incentives for businesses to invest in clean energy technologies by boosting domestic industrial capacity and enabling greater competition with China, which is the leader in the production of many green technologies. These initiatives also aim to accelerate countries’ transition towards achieving net-zero greenhouse gas emissions, but most incentives include strict sourcing requirements for components (notably in the US). These requirements have already spurred tensions between the EU and the US, and will probably raise the cost of inputs and subsequently the green technologies themselves."

The report importantly adds that should "relations with China experience a severe downturn (including in relation to strengthening China-Russia ties or deepening concerns over China's state-driven industrial policy), Western economies could increase existing tariffs on Chinese imports or accelerate decisions on pending investigations into anti-dumping and state subsidy charges, further fueling price growth. China would retaliate, possibly by blocking exports of raw materials that are critical to the green transition agenda such as rare earths, making decarbonization efforts more expensive for developed markets. These costs would force economies to consider returning to carbon-based technologies, limit support from Western countries to fund emerging markets' energy transition and delay timelines for achieving net-zero emissions."

Regarding the spread of industrial action that will lead to the disruption of global productivity, the EIU says: "High global commodity prices, continued supply-chain disruptions, high food prices and continued currency weakness against the US dollar for some countries will continue to fuel discontent in 2024-25." What is more, "Wages have not risen as quickly as inflation in most countries, making it harder for poorer households to purchase basic staples. This could spark social unrest, expanding the small-scale protests and industrial action already seen in Europe, the US, South Korea and Argentina. In an extreme scenario, protests could push workers in major economies and who are employed by large manufacturers to co-ordinate large-scale strikes demanding salary increases that match inflation. Such movements, like those that have affected the automotive industry in the US and key services in the UK (healthcare, ports and railways), could paralyze entire industries or public services for an extended period and spill over to other sectors or countries, weighing on global growth."

As for artificial intelligence disrupting elections and undermining trust in political institutions, the EIU points out that "Global firms and governments have rapidly begun to test and integrate generative artificial intelligence (AI) into existing platforms and processes." Furthermore, the EIU believes "AI will augment (rather than replace) human capabilities, presenting an opportunity for firms to improve productivity. However, the widespread adoption of AI and its use in social media will raise the risk of a spread in disinformation campaigns via text, imagery, audio and video in the coming years. Regulation across different geographies is coming, but malicious actors will still look to implement wide-ranging programs aimed at fueling existing skepticism of some citizens towards governments." The report crucially notes that "This could potentially shift the result of major elections scheduled for 2024—including for the EU parliament, and in the US, the UK, India and Taiwan—and more broadly erode voters' trust in political systems."

The world is facing geopolitical tensions, the advent of new technologies, and persistent environmental threats that could upset the economic outlook for the coming year. Which of the global risk scenarios will you be watching?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

Growth Prospects, Risks and Trends in Six Critical Sectors in 2024

The past few years have been turbulent for most companies as the pandemic, soaring commodity prices, high interest rates and political disruption resulted in profits for many and bankruptcy for some. A report published by the Economist Intelligence Unit (EIU) asks: Will conditions stabilize in 2024?

EIU's report provides growth prospects, risks and trends facing six critical sectors in the coming year, as inflation eases but geopolitical tensions remain high. The report argues that the biggest challenge facing businesses next year will be climate change and looks at how experimentation with artificial intelligence will give way to rapid adoption, changing corporate strategies and the nature of work.

Key findings include:

• Climate change will drive demand in sectors relating to mitigation and adaptation. Insurers, companies and governments will struggle to price in the increasing risks.
• EU and US regulations on environmental, social and governance (ESG) reporting will push companies to scrutinize their operations and supply chains. However, skepticism about ESG will harden in the US ahead of November’s presidential elections.
• Corporate concerns over taxation will increase as the OECD introduces its global minimum tax rate and individual governments try to reduce budget deficits and national debt levels.
• Geopolitical tensions and wars will complicate government and corporate responses to all of the above. Investment in supply chains, particularly for technology and the energy transition, will adapt to minimize political risk.
• Generative artificial intelligence will disrupt a few sectors, but most companies will find ways to use AI to increase productivity.

The report also provides key global forecasts for each sector covered:

• Automotive: The automotive industry will face another subdued year in 2024, weighed down by slow consumer spending, high interest rates and disruption to supply chains due to geopolitical tensions. The only bright spot will be the electric vehicles market, with sales expected to soar by 21% to 14.9 million unit as governments and consumers try to mitigate the worsening effects of climate change. The report notes that established carmakers will have to fight hard to hold off competition from China.
• Consumer goods and retail: A slowdown in inflation will bolster retail volume growth by 6.7% in US dollar terms and 2% in volume terms in 2024. However, reduced savings and high food prices, worsened by the effects of climate change, will act as dampeners. The EIU also points out that high food prices will continue to cause problems in Asia.
• Energy: Global energy consumption will grow by 1.8% in 2024, largely driven by strong demand in Asia. Despite still-high prices and unsolved supply chain disruptions, demand for fossil fuels will reach record levels, but demand for renewable energy will rise by 11%.
• Finance: High interest rates will determine the success or failure of almost every part of the financial services sector in 2024. Though painful for borrowers, banks will enjoy strong net interest margins margins and revenue flows until margins begin to narrow mildly in late 2024. Property firms and funds, however, will suffer.
• Healthcare: Healthcare spending will rise by 2% in real US-dollar terms, following two years of decline, as inflation eases. However, resources will remain constrained as governments try to bring down fiscal deficits and public debt levels.
• Telecoms and technology: Geopolitics will continue to affect technology in 2024. The tech battle between the US and China will persist in areas including artificial intelligence (AI), chips and quantum technologies. AI will continue to develop, particularly generative AI, but will encounter challenges from new regulations in the EU and other major jurisdictions, as well as complications from US-China tensions.

I appreciate how the annual industry outlook provides businesses with foresight of the critical global trends and threats that will affect their sector 2024. Which trends and threats are you watching in the coming year?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

Helping Policymakers and Stakeholders Understand Risk and Design Effective Policies for Urban Resilience

According to a report developed by Economist Impact and supported by the Tokio Marine Group, "The world is facing unprecedented challenges. Extreme weather events, from hurricanes and wildfires to flooding and heatwaves, are becoming more frequent and their effects more devastating." Furthermore, "Emerging risks like cyber-attacks loom larger as technology dependence deepens. Our cities are exposed to all of these risks and more. Lives and livelihoods depend on our ability to understand and mitigate the evolving threats to our urban centers."

The Resilient Cities Index highlights three phases to resilience. "Preparation and mitigation come first. Understanding the risks, how they are evolving and taking steps to minimize their impact is essential if cities are to avoid the worst. The second phase is response, necessitating swift reactions and timely assistance to save lives and diminish the impact when disasters occur. Last is recovery, emphasizing the need to learn from tragedies and rebuild stronger, better-equipped communities for future shocks and stresses."

Aiming to help policymakers and stakeholders understand risk and design effective policies for urban resilience, Economist Impact developed a benchmark of 25 cities. To gauge the resilience of these cities, the report's authors took measurements across four pillars: critical infrastructure, environment, socio-institutional and economic. This white paper combines index analysis with expert commentary to identify patterns, common strengths, deficits and best practices across index cities.

Key findings from the inaugural edition of the Resilient Cities Index include:

• Cities performed well in the critical infrastructure pillar of the index, but there are some weak points that require strategic focus. The cities with the highest scores were Dubai, Shanghai, New York and Singapore. These capital-rich market locations have greater opportunities to develop new infrastructure, compared with European cities constrained by decades- or centuries-old systems. Within this pillar, digital infrastructure and transportation were a drag on cities' resilience.
• Cities that use data and technology to create operational efficiencies and share information with their citizens—i.e., smart cities—are better at dealing with shocks. Patchy internet quality, which can impede access to digital services, pulled down the overall resilience score in the critical infrastructure pillar. Digital technologies and advanced data analytics can help to predict risks, optimize existing systems and keep the public informed. Greater digitalization comes with risks, especially to critical infrastructure, but most cities in the index have built safeguards against this.
• Most emerging economy cities lack adequate regulatory frameworks, strategies and incentives for futureproofing infrastructure. Only a few cities in the index achieved high scores for future-proofing, which involves ensuring infrastructure preparedness for shocks while managing current and future emissions. One way cities can future-proof is by incentivizing sustainable designs for buildings, such as installing green roofs, incorporating modularity and retrofitting for energy efficiency—a practice only found in high-income cities in the index.
• Efforts to achieve environmental resilience are led by innovative solutions. Cities are employing a variety of nature-based solutions to adapt to flooding and heat stress, from planting rooftop vegetation and mangrove forests (green infrastructure) to rehabilitating wetlands (blue infrastructure). Cities are also decarbonizing by adopting renewable energy and negative emission technologies, such as carbon capture, storage and removal. However, the scalability of these technologies is likely to be challenging for resource-constrained emerging market cities.
• Cities demonstrated poorer performance in the socio-institutional pillar, mostly due to income inequality and poor health and well-being metrics. Only nine cities have a single, comprehensive plan to support vulnerable groups. However, one bright spot is that cities are promoting a culture of readiness to act in the event of a disaster. The majority of cities scored highly on this or are working to improve their readiness.
• Cities had the lowest average scores in the economic pillar, dragging down some cities that performed well in other areas. The low penetration of financial safety nets hinders safeguards against threats and undermines a city's ability to recover from shocks. Another aspect of economic resilience is a city’s ability to incubate innovation, which can foster solutions to a range of problems, from congestion to water stress. Unfortunately, most cities scored poorly on the indicator for start-up ecosystems.

The report's conclusion points out that "A resilient city is not only prepared for shocks but has the ability to bounce back and thrive. Recognizing both existing and looming threats will help cities better understand their vulnerabilities and design targeted actions. However, building such cities requires stakeholders from government, businesses and communities, as well as individual city-dwellers, to engage in holistic resilience thinking at community and municipality levels."

Moreover, "While resilience needs to be tackled in myriad ways, a number of critical strategies have been identified in the course of this research and are summarized below."

• Empower the community to be active participants. This is contingent on the democratization of information. All city-dwellers should have equal access to government information, including what to do in an emergency. Some cities, like Singapore, do this very well, using digital channels to disseminate information to everyone simultaneously. Fostering a culture of readiness and the ability to manage hazards will require investment to train and educate people at governing and grassroots levels to be stewards of their city. Recognizing that information is key, municipalities could consider partnering with a digital platform to minimize misinformation and ensure the city moves in one direction, despite disruption.
• Social cohesion efforts need greater advancement across the board. Cities are nothing without the people who inhabit them. Greater attention to social cohesion will help to ensure cities are less fragmented, adaptive and better prepared for shocks. City governments should overlay resilience efforts with initiatives that aim to improve the lives of urban residents. This process should be driven by city leadership and engage civil society. The majority of cities in the index have some way to go to strengthen social cohesion through integration programs for society's most vulnerable.
• Early warning systems (EWS) are vital for safe cities but investment is needed to hit the 2027 target. National governments and municipality leaders will have to collaborate to ensure universal early warning systems coverage by 2027. There are two challenges that need to be met. First, capital is needed to bridge the investment gap for technologies with a greater push for the development and adoption of frontier and horizon tech–from drones to AI. Second, governments need to facilitate the necessary legislation to connect these EWS to emergency and response plans to ensure there are protocols and resources in place to deal with climate extremes and hazards. Community acceptance and responsiveness to early warnings are essential in the effectiveness of EWS. This can be achieved through systematic training and education and awareness programs.

What do you think of the report's findings and conclusions? Do you have additional recommendations on how policymakers and stakeholders understand risk and design effective policies for urban resilience?

​Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

Financing International Transactions and 12 Steps to Exporting Success

While researching material for the previous post on this forum about a publication produced by the Export-Import Bank of the United States (EXIM) that helps empower American small businesses to succeed in global markets, I discovered an infographic that presents three ways to finance international transactions:

Option 1: Traditional Transaction

Exporter sells to buyer and arranges for either cash-in-advance (the safe choice) or open account credit terms, which is an effective sales tool but one that carries some risk.

Option 2: Transaction with a Factor

The Factor buys invoices from the exporter at a fee and pays the exporter immediately. The foreign buyer is instructed to pay the Factor by the due date on the invoice.

• Step one: Exporter contracts with Factor
• Step two: Exporter ships to foreign buyer
• Step three: Factor pays exporter upon shipment
• Step four: Foreign buyer pays Factor for goods by invoice due date

Pros of this transaction include the elimination of risk of nonpayment by foreign buyer, payment to the exporter is fast, generally fewer than 10 days, and it maximizes cash flow. More costly than export credit insurance and generally applicable for sales with terms of fewer than 90 days are two of the key risks of transaction with a Factor.

Option 3: Export Credit Insurance

The exporter wins sale to foreign buyer by offering open account credit terms. The Exporter uses an Export Credit Insurance (ECI) policy to insure the receivables against nonpayment by the foreign buyer.

With ECI, receivables are covered up to 95% of the invoice amount. Costing pennies on the dollar, ECI is a more affordable. This post that I published in this forum provides a thorough overview of ECI.

Trade Finance Guide

Exporters may also find value in the Trade Finance Guide: A Quick Reference for U.S. Exporters, which is produced by the U.S. Department of Commerce's (DoC) International Trade Administration (ITA) that explains the basics of trade finance so that U.S. companies can evaluate appropriate financing options to ensure they get paid for their sales.

Export Solutions Guide

In addition, trade professionals at the U.S. Commercial Service, part of the ITA, produced the Export Solutions Guide: 12 Steps to Exporting Success, which was developed to assist American exporters create successful international sales strategies. The twelve steps include:

1. Learn How to Export
2. Research Foreign Markets
3. Network and Learn at Events
4. Find Buyers and Partners
5. Explore eCommerce Resources
6. Obtain Financing
7. Negotiate an Export Sale
8. Navigate Shipping and Logistics
9. Comply with U.S. and Foreign  Regulations Regulations
10. Perform Due Diligence
11. Protect Intellectual Property
12. Resolve Export Problems

Which resources do you find useful in financing international transactions or achieving exporting success?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

Empowering American Small Businesses to Succeed in Global Markets

While I am proud of my three decades of doing business in all corners of the world, I always appreciate the opportunity to learn more about how to seize the opportunities and mitigate the risks of global business. Therefore, it was with great interest to learn about a document produced by the Export-Import Bank of the United States (EXIM), an independent government agency that assists in financing and facilitating U.S. exports of goods and services, that helps empower American small businesses to succeed in global markets.

The document begins with presenting the services provided by the U.S. Export Assistance Centers (USEACs) as one-stop shops that equip American businesses to compete on a global scale. Specifically, USEACs bring multiple exporting resources together in one convenient location. These centers are situated throughout the country to offer support directly to businesses currently exporting or thinking about exporting. USEAC offices are staffed with three of the federal agencies engaged in assisting export businesses: (1) the U.S. Department of Commerce (DoC), (2) the U.S. Small Business Administration (SBA), and (3) EXIM.

The DoC helps business owners learn how to export, connect with foreign buyers, and expand operations in new foreign markets. The SBA supports small businesses that are exporting or interested in learning more about exporting. Moreover, with the help of its partners, the SBA provides counseling and training, helps businesses find buyers with the State Trade Expansion Program, and has loan guarantee programs available specifically for exporters. One way that EXIM assists companies is by providing Export Credit Insurance. An Export Credit Insurance policy covers the accounts receivable generated by international sales, protecting your company against nonpayment by foreign buyers. The insurance policy mitigates risk while empowering companies to meet or beat their competitors. Business owners can use open account credit terms to win new customers and increase sales to existing buyers. Many posts on entrepreneurship in this forum provide additional details about some of the programs offered by these government agencies.

Addressing financing tools from EXIM, the document notes that running a small business comes with risks but getting paid does not need to be one of them. EXIM's Export Credit Insurance empowers business owners to grow sales while mitigating the risk of selling internationally. Using Export Credit Insurance empowers businesses to offer open account credit terms to compete more aggressively, protect their foreign receivables from nonpayment, expand their borrowing base and improve cash flow.

EXIM's Working Capital Loan Guarantee provides exporters with access to the cash needed to fulfill sales and take on new business abroad. Exporters can use a working capital loan to cover the costs of labor, materials, overhead, and supplies required to fulfill a foreign sale. A business can use their Working Capital to pay for materials, equipment, supplies, labor, and other expenses to fulfill export orders, post standby letters of credit serving as bid bonds, performance bonds, or payment guarantees, and purchase products for export.

The document correctly notes that "Locating new buyers overseas can be time consuming, expensive, and frustrating." It points out that the DoC is available to help by matching American exporters with foreign buyers. There are two programs that can businesses can utilize to grow their operations overseas:

DoC's Gold Key Matching Service arranges meetings with interested partners in international markets. The Gold Key team first identifies foreign buyers, assesses them, and provides profiles of the best matches. When it comes time for a meeting with a matching foreign company a member of the Gold Key team can accompany business owners and managers and provide support.

Through the Single Company Promotion, the DoC can organize a variety of promotional events to increase awareness of a company's products and services in a specific international market. These promotional events may include targeted email campaigns, seminars, webinars, direct mail campaigns, and receptions all designed to reach an audience of potential clients. The DoC handles all the logistics, project management, and provides a post-promotion review to discuss next steps.

While not mentioned in the document, it is worth mentioning Export.gov, which is managed by the DoC and International Trade Administration to assist businesses plan their international sales strategies and succeed in today's global marketplace.

Regarding the Small Business Administration, the SBA Learning Center gives businesses access to courses on all of these topics and more:

• Planning and strategy to develop an international business plan
• Legal and regulatory to help you navigate regulations and legal issues
• Documentation and product requirements
• Pricing development and strategy
• Marketing and social media 

The SBA also works with lenders to guarantee loans in support of international trade. These include the  Export Express Loan, the International Trade Loan, and the Export Working Capital Loan. The SBA also has a grant program called the State Trade Expansion Program (STEP) that provides funding to state and territory governments. These STEP funds are exclusively available to help small businesses with export development.

I possess extensive experience working with these three government agencies and can attest to the value each one provides for businesses looking to succeed in global markets. Feel free to contact me if I can be of service to you.

​Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.