All risks on the rise: WEF report

All risks on the rise: WEF report | Insurance Business

All risks on the rise: WEF report
The risk with the greatest potential impact for 2016 has been found to be a failure of climate change mitigation and adaptation, according to the latest World Economic Forum (WEF) Global Risks Report.

This is the first time since the report was first published in 2006 that an environmental risk has topped the ranking, and this year was considered to have greater potential damage than weapons of mass destruction (2nd), water crises (3rd), large-scale involuntary migration (4th) and severe energy price shock (5th).

Meanwhile, the number one risk in 2016 in terms of likelihood, was large-scale involuntary migration, followed by extreme weather events (2nd), failure of climate change mitigation and adaptation (3rd), interstate conflict with regional consequences (4th) and major natural catastrophes (5th).

The report, prepared in collaboration with Marsh & McLennan and Zurich by surveying 750 experts, revealed a risk landscape of unprecedented breadth, something its authors said had not occurred in the 11 years the report had been measuring global risks.

The only category not to feature is technological risk, where the highest ranking risk is cyber-attack, in 11th position in both likelihood and impact.

“For the first time, four out of five categories – environmental, geopolitical, societal and economic – feature among the top five most impactful risks,” the WEF said in a summary of the report.

“This diverse landscape comes at a time when the toll from global risks would appear to be rising.

“Warming climate in 2015 is likely to raise the global average surface temperature to the milestone of 1C degree above the pre-industrial era for the first time.

“The number of people forcibly displaced in 2014 stood at 59.5 million according to UNHCR, almost 50% more than in 1940.

“Data from the report appears to support the increased likelihood of risks across the board, with all 24 of the risks continuously measured since 2014 having increased their likelihood scores in the past three years.”

The report also examined the interconnections among the risks and found a convergence may be occurring.

Margareta Drzeniek-Hanouz, head of global competitiveness and risks, WEF, said: “We know 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.

“Mitigation measures against such risks are important, but adaptation is vital.”

Through its analysis of the interconnections between risks, the 2016 report also explored three areas where global risks have the potential to impact society.

These were the concept of the ‘(dis)empowered citizen’, the impact of climate change on food security, and the potential of pandemics to threaten social cohesion.

President of global risk and specialities at Marsh, John Drzik, said events such as Europe’s refugee crisis and terrorist attacks had raised global political instability to its highest level since the Cold War.

This, he said, was ‘widening the backdrop of uncertainty against which international firms will increasingly be forced to make their strategic decisions’.

“The need for business leaders to consider the implications of these risks on their firm’s footprint, reputation, and supply chain has never been more pressing,” Drzik said.

The report also provided country-level data on how businesses perceive global risks in their countries.

Unemployment and under-employment appeared as the risk of highest concern for doing business in more than a quarter of the 140 economies covered.

Energy price shock was the next most widespread risk, and cyber-attacks featured among the top five risks in 27 economies, indicating the extent to which businesses in many countries have been impacted already by this rising threat.

In New Zealand, the most worrisome risk for executives was natural catastrophes, which the report said ‘reflected that the country’s position on the Alpine Fault makes it vulnerable to earthquakes and tsunamis.’

In reference to the Asia Pacific region, the report said: “The region’s need to build resilience against climate and weather risks could also help to explain why risks such as failure of critical infrastructure and national governance rank high in some of the economies.”

The risk of an asset bubble ranked top in seven Asia Pacific economies (Australia, Cambodia, China, Hong Kong SAR, Myanmar, New Zealand and Thailand).

The report said this ‘reflected the recent equity market turmoil in China and potential spillovers into the other countries from the region as well as over-evaluation of property in some of the economies such as Hong Kong or Sydney.’

Read the full report here.