Extreme weather risk tops the global list-World Economic Forum

Environmental risks continue to dominate the results of the World Economic Forum’s (WEF) annual Global Risks Perception Survey (GRPS).

This year, they accounted for three of the top five risks by likelihood and four by
impact. Extreme weather was the risk of greatest concern, but the survey respondents are increasingly worried about environmental policy failure: having fallen in the rankings after Paris, “failure of climate-change mitigation and adaptation” jumped back to number two in terms of impact this year.

The WEF Global Risks Report, which incorporates the results of the annual Global Risks Perception Survey of approximately 1,000 experts and decision-makers, points to a deterioration in economic and geopolitical conditions. Trade disputes worsened rapidly in 2018 and the report warns that growth in 2019 will be held back by continuing geo-economic tensions, with 88 per cent of respondents expecting further erosion of multilateral trading rules and agreements.

Scott Leney, March CEO, Pacific says, “Understanding risk at a global level is important for businesses of all sizes in Australia. Trends and predictions on risk issues help us anticipate events that could impact our organisations and prepare ourselves to mitigate or find risk financing solutions for them. In 2019, these issues include addressing the human impact of global risks, technological vulnerabilities, environmental risks and geopolitical and geo-economic tensions.”

Leney’s three macro takeaways for Australian businesses from the 2019 global risks report are:

  1. Businesses should be proactive in identifying potential sources of business disruption in their organisation and initiate or continue senior level conversations on how to best mitigate those risks.
  2. Risk response is as important as risk prevention and firms should focus on how to respond to fast moving events with a high degree of uncertainty.
  3. Consider geographic shifts in risk and how this might change strategies relating to investment decisions or supply chains.

The report states that world’s ability to foster collective action in the face of urgent major crises has reached crisis levels, with worsening international relations hindering action across a growing array of serious challenges. Meanwhile, a darkening economic outlook, in part caused by geopolitical tensions, looks set to further reduce the potential for international cooperation in 2019. As per the research, the results of climate inaction are becoming increasingly clear. The accelerating pace of biodiversity loss is a particular concern. Species abundance is down by 60 percent since 1970. In the human food chain, biodiversity loss is affecting health and socioeconomic development, with implications for well-being, productivity, and even regional security.

Sean Walker, Chief Underwriting Officer, General Insurance, Zurich Financial Services Australia says, “For the third year running environmental risks have dominated the report, which is no surprise in a year that’s been characterised by bushfires, heatwaves and flooding.

“This week heat records have been broken in Western Australia, New South Wales and South Australia, and if these conditions persist there will undoubtedly be an impact on business. Australian businesses should be building climate change resilience and adaptation strategies into their broader business plans. These plans need to be real and tangible, not treated as some ‘horizon 3’ or ‘Black Swan’ conceptual event but as something to be addressed as part of a new operating environment.”

In the survey’s 10-year outlook, cyber risks sustained the jump in prominence they registered in 2018, but environmental risks continue to dominate respondents’ concerns beyond the short term. All five of the environmental risks the report tracks are again in the high-impact, high-likelihood category: biodiversity loss; extreme weather events; failure of climate-change mitigation and adaptation; man-made disasters; and natural disasters.

At an individual level, declining psychological and emotional well-being is both a cause and consequence within the wider global risks landscape, impacting, for example, social cohesion and political cooperation. The Global Risks Report 2019 focuses explicitly on this human side of global risks, looking in particular at the role played by complex global transformations that are under way: societal, technological and work-related. A common theme is that psychological stress relates to a feeling of lack of control in the face of uncertainty.

This year’s report revives the Future Shocks series, which recognizes that the growing complexity and interconnectedness of global systems can lead to feedback loops, threshold effects and cascading disruptions. These “what if” scenarios are food for thought as world leaders assess potential shocks that might rapidly and radically disrupt the world. This year’s sudden and dramatic breakdowns include vignettes on the use of weather manipulation to stoke geopolitical tensions, quantum and affective computing, and space debris.

Top 5 Risks by Likelihood

  1. Extreme weather events (e.g. floods, storms, etc.)
  2. Failure of climate-change mitigation and adaptation
  3. Major natural disasters (e.g. earthquake, tsunami, volcanic eruption, geomagnetic storms)
  4. Massive incident of data fraud/theft
  5. Large-scale cyberattacks

Top 5 Risks by Impact

  1. Weapons of mass destruction
  2. Failure of climate-change mitigation and adaptation
  3. Extreme weather events (e.g. floods, storms, etc.)
  4. Water crises
  5. Major natural disasters (e.g. earthquake, tsunami, volcanic eruption, geomagnetic storms)

Top 5 Risk Interconnections

  1. Extreme weather events + failure of climate-change mitigation and adaptation
  2. Large-scale cyberattacks + breakdown of critical information infrastructure and networks
  3. High structural unemployment or underemployment + adverse consequences of technological advances
  4. High structural unemployment or underemployment + profound social instability
  5. Massive incident of data fraud/theft + large-scale cyberattacks
  6. Failure of regional or global governance + interstate conflict with regional consequences

Top 5 Trends

  1. Changing climate
  2. Rising cyber dependency
  3. Increasing polarization of societies
  4. Rising income and wealth disparity
  5. Increasing national sentiment

For the full report, please click here.