Navigating Renationalization and Emerging Risks: A Guide for Internal Auditors

In recent years, the global trade landscape has witnessed a significant shift. The momentum towards globalization, which gained traction with the inclusion of China and India in global markets, has begun to reverse due to rising political populism and escalating tensions among global players. The COVID-19 pandemic and its associated supply chain disruptions further amplified the need for onshoring and nearshoring. The Russian invasion of Ukraine exacerbated these concerns, further dividing the world and emphasizing the importance of “friendshoring.” These developments have uprooted long-held assumptions about relying on a global, just-in-time market, leading to long-lasting consequences that internal auditors and auditor leaders must address.

Renationalization and Cybersecurity
Renationalization has unfolded in the realm of cyberthreats, with an alarming trend. A staggering 92% of organizations have recently experienced or expect to encounter state-sponsored cyberattacks, often targeting enterprises for monetary gain. Notable examples include North Korean crypto-related attacks. However, the intensifying tensions between Russia and NATO, as well as China and the United States, have raised concerns about retaliatory cyberattacks. Regulators have responded by increasing their focus on cybersecurity, leading to the introduction of new disclosure rules in the United States and the United Kingdom. Internal auditors must be proactive in assessing their organization’s cyber resilience and ensure robust cybersecurity measures are in place.

ESG Fragmentation and Increased Scrutiny
The global community is witnessing growing divisions regarding the significance of Environmental, Social, and Governance (ESG) factors and the need for regulations. Western and many Asian countries are at odds when it comes to the importance of ESG and its regulatory frameworks. Moreover, even among Western nations, there is a rising divergence on how to standardize reporting requirements and regulations. As an illustration, the EU has recently put the “S” (Social) component of ESG on hold. Internal auditors should be aware of these divergences and closely monitor evolving regulations to ensure their organizations remain compliant and responsive to the changing ESG landscape.

Renationalization and Data Governance
Another critical area impacted by renationalization is the use of data and data governance. As the deployment of artificial intelligence (AI) expands and data becomes increasingly central to business models, numerous countries are enacting more stringent data requirements, such as data localization. This trend reflects a variety of perspectives on the regulation of AI and data risks, particularly those associated with personal data. Different countries hold contrasting viewpoints on how best to address these challenges. Internal auditors must stay informed about evolving data governance requirements and assess the potential impact on their organization’s data management practices.

The shift towards renationalization and the accompanying risks pose significant challenges for organizations in the current geopolitical landscape. As internal auditors and auditor leaders, it is crucial to recognize the implications and actively respond to these changes. Addressing cybersecurity threats, adapting to evolving ESG regulations, and navigating diverse data governance requirements are paramount for maintaining resilient and compliant operations. By staying informed, fostering collaboration, and proactively assessing risks, internal auditors can guide their organizations through this era of multipolarization and geopolitical assertiveness, ensuring sustained success in an evolving global marketplace.

ESG management in the lens of operational risk is vital in today’s changing operational risk landscape. Managing your strategy, data, and risk in an ESG lens can be difficult. Try EmpoweredESG to see how your organization can adapt effectively.

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