NEWS WEF Global Risk report 2015
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BEN NORRIS takes a look at the key findings and points of discussion from the latest annual WEF report
International conflict biggest threat as geopolitical risks return to the fore: WEF Ben Norris bnorris@commercialriskeurope.com
[LONDON]
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NTERNATIONAL CONFLICT IS THE MOST LIKELY
risk to cause global instability over the next 10 years with water crises potentially the most damaging, according to the World Economic Forum’s (WEF) 10th annual Global Risks report. Geopolitical and societal risks dominate the report’s global risk rankings. 2015 continues the trend away from economic risks that were seen as the leading concern between 2007 and 2012. The annual Global Risks report takes a ten-year view on the potential impact of global risks grouped into five categories—economic, environmental, geopolitical, societal and technological. This year nearly 900 experts worldwide from industry, government and academia took part in the Global Risk Perception Survey that asked them to rank 28 risks and their potential impact over a 10-year period. The survey, that informs the report, finds that interstate conflict with regional consequences is the biggest threat to global stability. It is seen as the most likely risk to cause problems and is rated the fourth most serious in terms of impact. The next most likely risks are extreme weather events (2nd), followed by failure of national governance systems (3rd), state collapse or crisis (4th) and high structural unemployment or underemployment (5th). Water crises are perceived as the most damaging risk. In terms of potential impact, rapid and massive spread of infectious diseases ranked second, weapons of mass destruction third, interstate conflict fourth and failure of climate change adaptation fifth. Geopolitical risks account for three of the five most likely threats and two of the most potentially impactful.
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This category of risk also accounts for the biggest climbers, both in terms of likelihood and impact, with weapons of mass destruction, terrorist attacks and interstate conflict rising furthest. Societal risk also features prominently in 2015 and, in water crises and rapid and massive spread of infectious diseases, account for the top two potentially impactful threats. Speaking at the report’s launch last month, Espen Barth Eide, Managing Director and Member of the Managing Board at the World Economic Forum, said: “One of the major takeaways from the 2015 report is that geopolitical risks are now very high on the agenda.” “For the first time since we started the risk report interstate conflict with regional consequences is on top. That is a significant development and I believe reflects the geopolitical annus horribilis that we had in 2014,” he added. Mr Eide warned that increased interstate conflict could lead to a weakening of global governance institutions as the result of a lack of trust between
Technological change outpacing ability to govern their risks Cyber risk governance underdeveloped Ben Norris bnorris@commercialriskeurope.com
THE PACE OF TECHNOLOGICAL CHANGE IS outpacing our ability to govern and manage the risks, according to this year’s WEF Global Risks report. Speaking at the report’s launch, John Drzik, President of Global Risk and Specialties at Marsh, said: “The pace of technology innovation continues to accelerate. It is exciting but what is underappreciated is emerging technologies are creating new vulnerabilities. The pace of innovation is outpacing our ability to govern some of these risks.” Experts agreed that perhaps the most pressing area of concern is cyber risk. “It is not clear who is regulating the cybersphere,” said John Drzik. “It is an underdeveloped risk governance environment for something that is a very real risk now.” Axel P Lehmann, Chief Risk Officer at Zurich Insurance Group, agreed. “The key element is governance around all the aspects of data privacy and access to information type cyber risks. It is still absolutely open and unsolved.” He said that although the majority of the fortune 500 companies have made significant efforts to protect against and prevent cyber attacks they now need to focus on building resilience. “They need to know not only how to prevent but how to mitigate the effects when they have
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been victim of a cyber attack…companies need to get their act together not only to protect themselves within the walls of their company but across the whole value chain,” he said. Marsh’s Mr Drzik also flagged up other emerging technologies that could pose a threat in the future. He warned that a tremendous surge of interest in synthetic biology is not being properly managed. “This is an area where there is likely to be product development, but there is underdeveloped regulation. This combination produced the financial crisis in the financial sector and no one wants to see the biological equivalent of the financial crisis, so we have work to do,” said Mr Drzik. He also flagged up nanotechnology and artificial intelligence as potential risk hotspots. Mr Drzik stressed that while society needs to encourage innovation it must learn to better govern emerging threats. He called for increased dialogue among stakeholders to tackle this issue. “The recommendations we are making are more energetic dialogue amongst stakeholders around these risks, increased funding for risk governance to parrot the increased research in these areas so the pace of the two stays in line, broadening disclosure standards to enable better assessment, filling gaps in regulatory frameworks and more generally building a culture of responsibility among innovators in this area and more awareness of the potential vulnerabilities,” said Mr Drzik.
governments and populations. This would render society less able to tackle a whole range of risks and highlights the interconnectedness of global threats. “If key players are in competition with each other there is less energy left to deal with the issues that we should be dealing with these days and address common challenges,” said Mr Eide. “We could be less able to deal with collective problems such as health and the environment.” Axel P Lehmann, Chief Risk Officer at Zurich Insurance Group that, alongside Marsh & McLennan Companies, supported the report as strategic partner, noted the shift away from economic risks over the last few years. “There is somewhat of a shift, especially when you look to the longer term,” he said. “When you look back from 2007 to 2012 it was all about economic risks— asset bubble, financial systemic risks, new regulation and income disparity. In today’s environment the risks on the ten-year time horizon are much more about geopolitical, societal and environmental risks.”
WEF calls for more country CROs and risk management investment ■ At the launch of the 2015 WEF Global Risks report, John Drzik, President of Global Risk and Specialties at Marsh, explained that although some progress has been made in appointing country chief risk officers, the role needs to be broadened out and more widely adopted. Along with other experts, Mr Drzik called for increased risk management resource and resilience to help the world mitigate a rising number of interconnected risks. “The general approach that we would like to see business and governments take is put more resources into risk management and put more focus on that area,” he said. He reiterated the WEF’s desire to see chief risk officers in place within national governments. Although some progress has been made in this area more needs to be done, intimated Mr Drzik. “We recommend that governments do have a chief risk officer, or at least someone who has that responsibility to look across the various vulnerabilities that are faced by a country and try to put them in some type of perspective and priority to guide government departments,” said Mr Drzik. “There are governments that have done this. This role exists in half a dozen worldwide. But it is a practice that we would like to see put in place much more broadly.”
The urban world ■ The 2015 WEF report flags up rapid urbanisation as a growing and heavily interconnected risk. It considers how best to build sufficient resilience to mitigate the threat. “Without doubt, urbanisation has increased social wellbeing. But when cities develop too rapidly, their vulnerability increases: pandemics; breakdowns of or attacks on power, water or transport systems; and the effects of climate change are all major threats,” said Axel P Lehmann, Chief Risk Officer at Zurich Insurance Group. Mr Lehman gave the following key figures on urbanisation and related threats: • One third of the global population was living in cities in 1950. Today that percentage stands at 50% and is expected to jump to two thirds by 2050. • 56% of the African population is expected to live in cities by 2050, up from 40% today. 70% of the Asian population is expected to live in cities by 2050 from under 50% today. 80% of the world’s GDP will be produced in cities by 2050. • More than $71tn of investment is needed in the world’s cities by 2030 to meet telecom and water infrastructure needs alone. • More than 700 million people living in cities today lack adequate sanitation, with 40% living in slums. • 15 out of the world’s 20 mega cities are located along coastal areas and have huge flood exposure. “Unprecedented transition from rural society to a truly urbanised society has a lot of benefits, but unplanned and too rapid urbanisation can ultimately touch many risk dimensions such as infrastructure, health, climate and societal issues,” said Mr Lehman. —Ben Norris
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