Forecast Review: 2021 Resilience & Risk

After what may be considered a strong start to the calendar year, further disruption coupled with geopolitical and cyber incidents threaten stability, presenting continued challenges for management and board members.  Here, we consider a range of topics that present risks and opportunities for Australian businesses in the second half of the year. Our updated forecast views the rise in cybercrime events, as well as an update on transactions as both investors and companies pay closer attention to Environmental, Social and Governance (ESG) factors when allocating capital.

The undeniable need for cyber resilience

Our expert team have been assisting clients in recovering from ransomware events, with the past 18 months described by experts as the most significant cyber-crime moment in modern history.

Ransomware is a high impact example of many of the trends we predicted earlier in the year. These attacks simultaneously work to maximise impact through disruption and present a significant “pay day” for cyber criminals. The trends we anticipate for the remainder of 2021 include:

• Cyber-crime is big business and attacks are 24/7/365, with vulnerabilities in cloud-based or internet facing systems at risk of being easily exploited

• Upon compromise, high value data will continue to be stolen and used as an extortion mechanism to great effect

• Cyber criminals understand digital supply chains and are now leveraging the “weakest link”

• Governments and businesses around the globe are grappling with what immediate actions can be taken to circuit break a trend that, for the moment, is favouring criminals. The ongoing debate of whether to pay, or not to pay a ransom also has a long way to play out.

Environmental, social and governance – a risk to company valuations?

Regardless of the position of governments around the world, there is no doubt that ESG principles are influencing capital allocation decisions. Companies are identifying material risks and growth opportunities, while investors are directing change. This shift has led to an increased regulatory response with a number of financial reporting and valuation standard-setters, as well as industry bodies, also moving to improve requirements around disclosure, comparability, and reliability of such information.

Perhaps the clearest signals of uptake are share price declines following publicised failures in managing these risks. ESG principles are attracting greater focus in due diligence and price negotiations in M&A transactions too. Disputes in which sellers’ disclosures of ESG risks fall short of buyers’ expectations, and which require expert accounting and valuation analysis, are something we expect to see in the years ahead.