Given the war in Ukraine and ongoing tensions in the Middle East, it is only natural to assume that businesses globally have prioritised geopolitical and energy risks. But there appears to be a longer-term risk category that corporates appear both unprepared for and that may present equal – if not greater – challenges than even environmental concerns: so-called ‘societal risks.’
In the latest Global Risks report released in January from the World Economic Forum (WEF), a leading think-tank, societal risks account for a third of the total list of current risks outlined as being the most serious by leading companies and key stakeholders (eight out of 33), four of the top 10 short-term risks, and two of the top-term long-term risks. They include inequality, the erosion of human rights and/or civic freedoms, involuntary migration/displacement, and ‘societal polarisation,’ where splits in society occur over widening gaps in income, opportunity, and political and cultural views. Together, these developments could have a serious impact on the global economy and world stability, say the report authors.
In fact, societal risk has become such a concern that it is ranked third in the WEF’s two-year outlook, only dropping to ninth place when respondents look 10 years ahead. Furthermore, it is the only risk that has remained in the top 10 list of risks for both the short-term and long-term outlook for the past five years, while inequality has been cited by leaders of the world’s largest companies as the most interconnected global risk for the past two years (higher even than environmental risks). With aspects such as mis/disinformation and geoeconomic confrontation also being heavily interconnected, societal and political polarisation could deepen further in the next two years, says the report.
Devastating impacts
If companies think these risks are unlikely to manifest themselves, they are badly mistaken: they already have – and with devastating impacts in some cases. Perhaps the most significant example is Brexit. The UK’s decision to leave the European Union (EU) in 2016 caught many off-guard despite years of polarised political debate about the merits of being a member of the bloc. Those voters who wished to remain part of the EU frequently cite an orchestrated, well-planned xenophobic disinformation campaign that successfully exploited social media as a key decider for the referendum result. And the impact is ongoing. The UK’s exit from the EU has seen a decline in the number of casual workers from lower-income EU countries in central and eastern Europe working in sectors such as farming and hospitality, which has been difficult for companies in these industries who are struggling to fill these positions with local labour. Brexit has also seen many workers with key skills across the public and private sectors leave the country due to changes in immigration and visa rules. Furthermore, highly charged public opinions around immigration and nationalism remain.
Societal risks should not be considered ‘peripheral’ any longer
Corporates have also suffered fallout from societal risks – most notably in sudden shifts in public sentiment that have led to disruptive consumer boycotts or workforce activism. For example, in 2023 brewer Anheuser-Busch InBev suffered a fierce boycott after its marketing campaign for Bud Light, featuring transgender influencer Dylan Mulvaney, riled conservatives over the brand’s overt LGBTQ+ support in a Superbowl ad. Sales plummeted by 17 percent in just two weeks and the brand’s two-decade dominance as the US’ most commercial beer also went up in flames. The company’s response – which included distancing itself from Mulvaney – then led to a boycott from the LGBTQ+ community. Even now, Bud Light’s sales have not fully recovered.
Due to their prominence and their capability to inflict long-lasting damage, experts say societal risks should not be considered ‘peripheral’ any longer – they are strategic risks. But there are many reasons why companies fail to recognise their potential importance, scale and impact. One is because companies instinctively place them lower down the pecking order compared to more ‘direct’ risks like competition or cost pressure. Another reason is that societal risks are inherently difficult to identify and quantify: they encompass a wide range of risks, which means companies’ responses also vary widely.
According to Paulo Cardoso do Amaral, MBA Professor at Portugal’s Católica Lisbon School of Business and Economics, societal risks often give off “weak signals,” such as subtle shifts in public sentiment, emerging social narratives, or early-stage policy debates, but then build up – and get out of hand – quickly. “What begins as a marginal conversation can escalate into a global movement within days,” he says. Traditionally, these signals used to evolve slowly enough to be captured through periodic analysis, but that assumption “no longer holds,” he says, “since the speed of communication amplified by digital platforms compresses the lifecycle of societal change.”
Non-traditional frameworks
Companies also undervalue societal risks because they do not fit neatly into typical risk categories. Traditional enterprise risk frameworks are designed around financial, operational and insurable risks – not inequality, migration or polarisation. And unlike market or credit risks, societal risks lack clear metrics, probabilities, and time horizons, which makes them difficult for organisations to quantify in the same way as more traditional and financial risks.
“Companies still tend to under-appreciate societal risks because they are easier to discuss in narrative terms than to govern operationally,” says Ryoji Morii, CEO of Insynergy, a Japan-based consulting firm. “These risks are often treated as ‘macro background conditions,’ even though they can directly affect workforce stability, customer trust, regulatory exposure, supply continuity, local legitimacy, and the resilience of operating assumptions.”
To address the problem, says Morii, companies need to ask themselves deeper questions to determine the wider consequences around how particular societal risks could alter their labour/recruitment market, license to operate, customer behaviour, legal exposure, political environment, or the reliability of their partners and operating regions.
Societal risk management also requires effective use of scenario planning to improve business continuity and make corporate strategy and operations more resilient. A simple scenario is in the area of talent management: when large groups of people feel excluded from the labour market, companies face a catastrophic talent shortage and rising operational costs due to social instability. Additionally, income disparity often prevents skilled individuals from accessing the training they need to fill modern roles. For companies, this means longer recruitment cycles and a skills gap that halts innovation.
Naima Robenhagen Burgdorf, global head of strategic workforce planning at Ramboll, an engineering, architecture and consultancy firm, has seen the problem present itself in the form of recruitment strategies, the use of contractors and off-shoring. “I have seen firsthand how companies become blindsided – not by the macro event itself, but by the workforce implications they never modelled,” she says. “A shift in geopolitical regional stability doesn’t show up as a workforce risk until you are suddenly re-evaluating where your offshore centres sit. A technology shift like AI doesn’t register as a societal risk until your early career pipeline model is structurally wrong,” she adds.
Supply chains are another key area where societal risks can linger. For instance, says Soledad Mills, senior vice president at sustainability consultancy TDi Sustainability, societal polarisation and income disparity concentrate vulnerable workforces in specific geographies, making certain countries disproportionately exposed to labour exploitation (including child/forced/slave labour), which can be a significant hidden risk factor in agricultural, garment, auto and electronics supply chains.
Meanwhile, involuntary migration creates a constantly shifting, undocumented labour pool that increases the likelihood of forced labour entering supply chains undetected. As a result, “companies relying on tier two, three or ‘nth’ suppliers in high-risk jurisdictions often have near-zero visibility into actual working conditions,” she says – a risky prospect given the current emphasis on third-party risk liability.
Enhanced due diligence
Another issue for companies is that key jurisdictions are beginning to require more due diligence and meaningful reporting around non-financial risks and the impacts companies’ operations can have on wider society.
Companies face direct liability for any harm caused by their actions
For example, the EU wants companies to consider societal risks and their impacts more directly. The EU Corporate Sustainability Reporting Directive (CSRD), which came into force in 2023 and took effect in 2025, applies to all large EU companies, but has extra-territorial impact due to the fact it also applies to non-EU companies that conduct significant business within the EU. Consequently, estimates suggest the directive covers around 50,000 companies worldwide.
A key requirement of the directive is that it mandates ‘double materiality,’ which means companies need to examine and report on the impact of the company’s operations on the environment and society, as well as report on the impact of sustainability factors on the company. Arif Gasilov, partner, climate and environmental reporting at sustainability consultancy Gasilov Group, believes “the double materiality assessment is probably the closest thing to a systematic tool for surfacing societal risks at the corporate level.”
He adds that the requirement to evaluate both how societal conditions affect the business and how the business affects societal conditions “creates a two-way map of exposure that traditional frameworks miss,” adding that “companies that actually go through this usually find societal risks that were previously invisible or buried under ‘reputational risk’ as a catchall.”
Mills adds that there is increased investor risk if companies neglect human rights due diligence and warns that “regulatory exposure is hardening, particularly in Europe” because companies face direct liability for any harm caused by their actions. Furthermore, she says, “companies with unmanaged human rights exposure face sudden devaluation when abuses surface,” while lenders and institutional investors are increasingly required under their own frameworks (such as the UN Principles for Responsible Investment and the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct) to assess human rights due diligence quality in portfolio companies. “Inadequate due diligence isn’t just a compliance risk,” says Mills, “it is a signal of weak governance and poor operational visibility overall.”
