Want a reminder of how much the world has changed in 2020? Well, we’re giving you one anyway.
At this point last year, fewer than 200 public companies cited “health epidemics and diseases” on their annual 10-K as a risk factor facing their business. With the onset of the COVID-19 pandemic, of course, that changed drastically. The number of 10-Ks citing the relevant risk factor rose by 619% in 2020, going from 190 to 1,366. That six-fold increase makes “health epidemics and diseases” by far the fastest-growing risk factor among the 100 most commonly included on 10-K forms over the last year, according to a search of the Intelligize platform.
No other risk factor we analyzed rose by more than 15%. The risk factors rounding out the top-five fastest risers related closely to issues that have dominated headlines in 2020—or would have, at least, in the absence of the pandemic.
International Trade Restrictions and Protectionism (up 13.84%): The Trump administration’s current threat to ban the popular dance-in-front-of-your-bathroom-mirror app TikTok is just the latest inflammation of a rivalry between East and West superpowers that is turning increasingly adversarial. The two countries signed a trade pact in January, but it took a painful three-year-long tariff war to get there. Now, there are rumblings that Trump could rip up the deal in the run-up to the election.
Regardless, it’s no wonder why a company like Nike warns in its latest 10-K that “tariffs and other changes in U.S. trade policy have in the past and could in the future trigger retaliatory actions by affected countries . . . .”
Natural Disasters, Climate Change, and Extreme Weather (up 11.38%): Public companies have been feeling the heat on this one. Not just the literal heat outside, but intensifying pressure from stakeholders. Some corners of the government have been pushing for greater ESG disclosure (including metrics relating to climate change). Meanwhile, deep-pocketed investors like BlackRock are getting serious about pressuring issuers to become more responsible stewards of the planet.
Disclosing risks relating to climate change is a relatively easy start along that path. This year, for instance, Dell Technologies Inc. added a paragraph to its 10-K risk factors noting that the “long-term effects of climate change on the technology industry are unclear.”
Anti-Corruption Law (up 10.27%) and Employee Misconduct (up 10.06%): Both of these were among the top-rising risk factors last year as well. The anti-corruption law risk factor reflects, most likely, the continued collaboration by the Department of Justice and SEC on anti-corruption cases with foreign governments. The employee misconduct risk factor, for its part, signals the continued influence of the #MeToo movement.
In addition, we identified the five most popular risk factors overall, which were:
- Failure to compete effectively
- Business (miscellaneous)
- Dependence on employees, management and key personnel
- Cybersecurity, data privacy, and information technology
- Operational disruptions
Here too, the effects of COVID-19 can be observed. The sudden shift to remote work has increased the risk of cybersecurity threats, the fourth most common risk factor. Some companies noted that phenomenon explicitly, including Paychex Inc., which said that a “cybercriminal may seek to exploit the disruption caused by the COVID-19 pandemic by . . . means that may be more successful when most of our employees are working remotely.”
On that note, we’ll let you resume daydreaming about what life was like in 2019.