KPMG: Energy Hit Hard by Geopolitics & AI Governance Gaps

Geopolitical uncertainty, trade restrictions and divergence on AI are the ‘biggest risks’ to growth for global companies, KPMG says, with energy hit worst

Research from leading consultancy KPMG shows that the energy and natural resources sectors are the most exposed to trade policy restrictions, geopolitical vulnerability and AI governance gaps, highlighting them as the most significant factors threatening long-term sustainable business growth.

According to the new report, Top risks forecast: Bottom lines for business in 2024, increasing conflict — particularly in the Middle East — and the politicisation of access to essential minerals are key threats posing a negative impact on the energy industry. 

KPMG’s Top risks forecast: Bottom lines for business in 2024 

Stefano Moritsch, Global Geopolitics Lead at KPMG International, said off the back of the report: “Last year alone, 91 countries were involved in some form of conflict, which led to an almost 13% hit on global GDP, according to data from the Institute for Economics & Peace.

Stefano Moritsch, Global Geopolitics Lead at KPMG International

“To some extent the Covid pandemic was a rehearsal for some of the broader risks and profound threats facing companies today. Leaders have developed a degree of resilience but, for the first time in modern history, they’re facing challenges on multiple fronts – from conflict to complex regulation, climate change and a ‘patchwork’ adoption of AI in different nations and regions.”

KPMG states that organisations across all industries face numerous geopolitical risks that can affect their operations and long-term sustainability.

As a result, there is a growing vacuum in global governance causing fragmentation of markets, supply chains, rules and standards.

What are the main findings?

KPMG’s report has three main findings. They are:

Key findings
  • Global trade restrictions have nearly tripled since 2019
  • In 2023, 91 countries were involved in some form of conflict, compared to 58 in 2008
  • Investment in AI has increased fivefold since 2013 but ethical challenges and governance gaps must be overcome

With this in mind, KPMG puts forward these main takeaways for 2024 and beyond.

  • Supply chain resilience remains a priority: This is due to increased geopolitical volatility and regionalisation of trade and investment
  • Taking AI policy into own hands: This must be done to ensure harmonised global regulatory frameworks
  • Adopting a proactive stance to geopolitics: Ensuring this factored-in across strategies and businesses operations is a non-negotiable
  • Expand considerations to operational footprint: Location and investment strategy will be based on political factors as well as economic ones.
  • A refined ESG focus: To include and emphasise the need for regulation amid a landscape of scrutiny

KPMG’s heat map, which shows the severity of different factors and their potential impact on each sector, outlines that energy’s main threats are the Middle East Crisis, the axis of rogue states and the fight for critical minerals, with these events putting the energy space on high alert.

Following closely behind is the US election, the lack of diplomatic solution to the Ukraine war, ungoverned AI, China’s slower growth, persistent global economic headwinds, all of which pose a threat, albeit less menacing and posing a moderate impact.

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