Emerging Risks for Saudi Arabia’s Industries

From cyber risk to climate change, an overview of initiatives and solutions Ashwag Alzahrani

Photo: Shutterstock.com/ixpert

In every organization, small or large, there are numerous risks such as operational, financial and strategic. Risks change rapidly and often materialize in surprising ways. Managing the dynamic risk landscape is a key element of success for any organization. To protect themselves, organizations need to continuously monitor the evolution of the risk landscape. Thus, effective management of today’s organizations requires robust and strong risk management practices.

Risk management cannot simply be a one-size-fits-all approach for every organization. It should be tailored to the size and complexity of the operation. Therefore, as the complexity and speed of modern civilization has increased, risk management has expanded in perceived value and sophistication.

Emerging Risks

Emerging risks are defined as those that a business has not recognized yet or those that are known to exist but are not well understood. Donald Rumsfeld, the former U.S. secretary of defense, said: “There are known unknowns. As a result, these are things that we know to be true. The unknowns are known. That is to say, we do not know everything. At the same time, there are unknown unknowns as well. We don’t realize what we don’t know.”

Emerging risks may include new technologies such as artificial intelligence (AI); neurotechnology; genetic engineering; and economic, societal, environmental, regulatory and political changes.

The majority of the risk management frameworks available assess risks in terms of their likelihood and impact. This may work for known risks, but not for emerging risks, however. Emerging risks have a unique set of characteristics that distinguish them from known risks, which suggests additional and complementary risk analysis tools and risk management techniques.

The most common characteristics of emerging risks include:1

  • High level of uncertainty—it is difficult to assess the impact and frequency of risks
  • Lack of consensus within an organization and industry
  • Uncertain relevance to a company’s objectives
  • Difficult to communicate due to lack of understanding
  • Difficult to assign ownership since it can have a global impact

The purpose of this article is to identify two of the top risks emerging in the 21st century in Saudi Arabia and explain how government agencies and private companies carry out risk management.

Cyber Risk

With new breakthroughs on the Internet of Things (IoT), AI and machine learning, our world is connected 24/7. But that also means we are exposed to more complicated cyber events.

Cyber risk is the risk caused by failures involving people, systems and processes that could damage or compromise the information system. It has become one of the most important boardroom agenda items due to its increasing incidence rate and impact. The Casualty Actuarial Society (CAS), Canadian Institute of Actuaries (CIA) and the Society of Actuaries (SOA) have outlined cyber risk repeatedly as a top emerging risk in their joint risk management surveys.2,3

The consequences of a cyberattack can be devastating for a company. For example, it can lead to substantial financial losses (e.g., costs for repairing systems, networks and devices); negatively impact relationships with customers, partners, investors and other parties when business data is stolen and exposed; or result in legal consequences culminating in fines and regulatory sanctions.

Due to its strategic position in the Middle East, Saudi Arabia continues to be a popular target for cyberattacks. Saudi Arabia’s country vision 2030 emphasizes digital transformation and the development of digital infrastructure.

 A chief information officer (CIO) survey conducted in Saudi Arabia found that 60% of Saudi CIOs consider managing security to be their biggest technology challenge. Moreover, 75% place a high priority on privacy and cybersecurity.4

A report commissioned by IBM Security in 2021 reported that the average cost of a data breach was $6.93 million, with health care incurring the highest cost.5

Government Invests in Cybersecurity

To safeguard the kingdom’s vital interests, national security, critical infrastructure, priority sectors, government services and activities, Saudi Arabia established the National Cybersecurity Authority (NCA) in 2017. Its duties include, but are not limited to, “drafting the national strategy for cybersecurity and overseeing its implementation; cybersecurity frameworks, controls and compliance; building and operating cybersecurity operation centers; developing human capabilities in cybersecurity; raising awareness of cybersecurity; stimulating growth of the cybersecurity sector and encouraging innovation and investment therein; and establishing ties with similar agencies abroad and private entities for the mutual exchange of knowledge and expertise in cybersecurity.”6

The NCA states that its responsibility for cybersecurity does not absolve public, private or other organizations from their own cybersecurity responsibilities: “All government organizations must improve their cybersecurity level to protect their networks, systems and data, and comply with NCA’s policies, framework, standards, controls and guidelines.”

Saudi Arabia ranked second among countries committed to cybersecurity at a global level in the Global Cybersecurity Index 2020.

Climate Change

The world’s governments, the private sector and civil society recognize climate change as a top global threat. It has an impact on human lives and health, the environment, the financial sector and economic systems. Climate change could have a significant impact on the structure and function of the global economy.

Governments, central banks, regulators and financial sector stakeholders have been working since 2015 to integrate climate risk into the core of the financial system. The following are a few of the impacts of climate change:

  • It affects the frequency, severity and distribution of natural catastrophes and extreme weather events. For example, the intensity, frequency and duration of North Atlantic hurricanes have all increased since the early 1980s, as have the frequencies of the strongest hurricanes (Category 4 and 5). It is still unclear how much of these increases are due to human activity and how much are due to natural causes. Intensity and rainfall rates of hurricane-associated storms are projected to increase as the climate continues to warm.
  • Since 1880, the global sea level has risen by about 8 inches. By 2100, the sea level is expected to rise from 0.2 meters to 2.0 meters.
  • Increasing temperatures cause pollen season to last longer and can worsen air quality, both of which can lead to increased allergies and asthma attacks. When the temperature rises, ground-level ozone, a major component of smog, causes coughing, chest tightness or pain; decreases lung function; and worsens asthma and other chronic lung diseases.
  • Summer temperatures are forecasted to rise, and soil moisture will decrease, which will exacerbate heat waves. Those impacts can affect community health, energy, agriculture and water supply.

What Impact Will Climate Change Have on the Financial Industry?

There are three categories of risks associated with climate factors in the industry:7

  1. Physical risk: It arises from physical phenomena associated with both climate trends and events that cause financial and physical losses. In the case of a severe weather event, such as a flood or hurricane, it can cause extensive damage to homes, businesses and financial markets.
  2. Transition risk: This is the result of the transition from an intensive carbon economy to a low-carbon economy that may affect the value of assets or business costs. Policy change, technological innovation and market dynamics may be responsible for this transition. For example, policy changes and regulatory reforms may have an effect on carbon-intensive sectors. Additionally, transition may change the demand for products and services.
  3. Liability risk: This is a result of climate-related claims under liability policies as well as direct claims against insurers for failing to manage climate risks.

The harsh climate and sensitive ecosystem of Saudi Arabia make it vulnerable to climate change. Consider these facts:

  • Seventy-six percent of its area (including 38% desert) is non-arable land
  • Over the past 40 years, average temperatures in Saudi Arabia have risen by more than 2 C, which is three times the current global average
  • The average annual rainfall in the kingdom is low
  • Renewable surface water resources are limited since the kingdom lacks rivers and lakes
  • Groundwater from local aquifers (mostly nonrenewable) is the major water supply source for domestic, agricultural and industrial purposes
  • Oil production, processing and export are the primary economic activities of the country

In response to calls on all governments to act, the kingdom aims to reduce greenhouse gas (GHG) emissions to 278 million tons of CO2 annually by 2030.8

According to a study done by King Abdullah Petroleum Studies and Research Center in 2020, CO2  emissions in the kingdom fell by 4.4% in 2018, moving the kingdom from fourth to the third fastest reducer of emissions from fuel consumption among G20 countries.9

Actions Taken by the Government

Saudi Arabia is investing in three key areas to fight the emerging risk of climate change:

  1. Renewable energy
  2. Carbon capture utilization and storage
  3. Green initiatives

Renewable Energy

By establishing the National Renewable Energy Program, the government will implement comprehensive reforms, regulations and policies to promote private-sector investment, research and development of renewable energy. The program successfully has launched two renewable energy projects in the northern region, including a 300 MW solar photovoltaic (PV) power plant and a 400 MW onshore wind farm.

NEOM, the kingdom’s flagship giga-project, will build one of the world’s largest green hydrogen facilities. Solar and wind energy will power the plant to the tune of more than 4 GWs.

Carbon Capture Utilization and Storage

The kingdom launched the Circular Carbon Economy National Program to draw a comprehensive roadmap, which includes technological localization and advancement through the implementation of the circular carbon economy. A circular carbon economy is a framework for managing and reducing emissions. It is a closed-loop system involving four Rs: reduce, reuse, recycle and remove carbon emissions.

Additionally, Saudi Arabia and Aramco have adopted the circular carbon economy framework as a way to reduce their carbon footprints.

Saudi Green and Middle East Green Initiatives

The Saudi Green Initiative aims to reduce carbon emissions by 60% with the help of clean hydrocarbon technologies and by planting 50 billion trees, including 10 billion in the kingdom. In the past few years, the government has announced other initiatives related to water and water management, marine protection, urban planning, increased utilization of electric cars and so on.


Ultimately, the kingdom still faces challenges under both emerging risks. Some are related to the applicable frameworks, and others are related to the lack of personnel and expertise, lack of collaboration among entities in various industries and cultural influence on policies.

Ashwag Alzahrani, ASA, CERA, is reserving manager at Al Rajhi Takaful in Saudi Arabia.

Statements of fact and opinions expressed herein are those of the individual authors and are not necessarily those of the Society of Actuaries or the respective authors’ employers.

Copyright © 2022 by the Society of Actuaries, Chicago, Illinois.