Global risks ranging from environmental disaster, interstate conflict and disruptive technology, are multiplying faster than ever and interconnections between these risks are growing stronger. This is creating a dangerous synergy that could have profound implications for society and the global economy.
These are the findings of 750 risk experts that contributed to the World Economic Forum (WEF) survey launched in the run up to the Davos meeting of world leaders in Switzerland this week. The Global Risk Report 2016 forecasts an increased likelihood for all the risks it covers, and with greater impacts, over the coming decade.
One of the key risks is the apparent lack of significant impact of climate change mitigation and adaptation, which appears to be contributing to water crises, which in turn drive political instability and involuntary mass migration. The number of people forcibly displaced in 2014 was nearly 60 million, according to UNHCR, almost 50% more than in 1940 during WWII.
Understanding such interconnections is increasingly important in helping policymakers prioritise areas for action, as well plan for contingencies. Margareta Drzeniek-Hanouz, head of global competitiveness and risks at the WEF, said: “We know that climate change is exacerbating other risks such as migration and security, but these are by no means the only interconnections that are rapidly evolving to impact societies, often in unpredictable ways,” she said.
Nick Beecroft, manager of emerging risks and research at Lloyd’s, said this interconnectedness was also highlighted in a 2015 Lloyd’s report – Food Shock Security – which contained scenarios that showed that climate events related to El Nino could potentially lead to food riots and falls in the US and UK stock markets.
Beecroft also notes the wide variation in the different risks prioritised by private sector respondents to the survey. For example, cyber risk is one of the top concerns in North America whereas environmental risk is a priority in Asia.
Global risks identified as serious because of their combined impact and likelihood, include some economic risks, such as “fiscal crises in key economies” and “high structural unemployment and under employment”. But these are complemented by “cyber attacks” and “profound social instability”.
WEF’s experts said these categories reflect the potentially profound impact of the so-called fourth industrial revolution on the economy and society, and the report emphasises the need to safeguard the future benefits of technological revolution.
However, business leaders do seem to be taking on board the implications of many of the risks identified in the report, especially those around reputation and supply chain, according to John Drzik, president of the global risk and specialties unit at Lloyd’s broker
Marsh, a strategic partner of WEF.
“In cyber and in geo-political risk insurance as well as other areas there will be opportunities for businesses to extend their insurance coverage,” Drzik said. “There are growing concerns about property damage and business interruption stemming from cyber [attacks] and many buyers want to obtain higher limits.”
Although technological crises have yet to impact economies or securities in a systemic way, cyber risk was placed first by business leaders in eight countries, including the US, Japan, Germany, Switzerland and Singapore.
A 2015 study by Lloyd’s and the Cambridge Centre for Risk studies – Lloyd’s City Risk Index 2015-2025 – which quantified for the first time the economic harm to 301 cities around the world from 18 threats, found that cyber attack alone could put about $300bn of projected GDP at risk over the next decade.
Top five global risks in terms of impact
Failure of climate change mitigation and adaptation
Weapons of mass destruction
Water crises
Large-scale involuntary migration (societal risk)
Energy price shock
Top five global risks in terms of likelihood
Large-scale involuntary migration (societal risk)
Extreme weather events
Failure of climate change mitigation and adaptation
Interstate conflict with regional consequences
Major natural catastrophes
