Tensions rise between short- and long-term risks – WEF global risk report

Short-terms concerns like the cost-of-living crisis are impacting response to longer-term risks, study finds

Tensions rise between short- and long-term risks – WEF global risk report

Risk Management News

By Ryan Smith

The effects of current crises, such as energy and food supply shortages and the rising cost-of-living, are undermining efforts to deal with long-term risks such as climate change, biodiversity and investment in human capital, according to the World Economic Forum’s Global Risks Report 2023.

The report, produced in partnership with Marsh McLennan and Zurich Insurance Group, polled more than 1,200 global risk experts, policymakers and industry leaders. It argued that the window for action on the most serious long-term threats is closing, and concerted action is needed before it’s too late.

At present, the COVID-19 pandemic and war in Europe have foregrounded the associated energy, inflation, food and security risks, the report found.

These, in turn, create follow-on risks that will dominate the next two years – the risk of recession, growing debt distress, an ongoing cost-of-living crisis, polarized societies, a pause on rapid climate action, and zero-sum geo-economic warfare.

Climate action needed

“Unless the world starts to cooperate more effectively on climate mitigation and climate adaptation, over the next 10 years this will lead to continued global warming and ecological breakdown,” the World Economic Forum said.

Failure to mitigate and adapt to climate change, natural disasters, biodiversity loss and environmental degradation represent five of the top 10 risks in the report, with biodiversity loss one of the most rapidly deteriorating risks over the next decade.

At the same time, crisis-driven leadership and geopolitical rivalries risk creating unprecedented societal distress as investments in health, education and economic development dwindle, further harming social cohesion. Increasing rivalries risk growing not only geo-economic weaponization but also remilitarization, especially through new technologies and rogue actors, the World Economic Forum said.

The coming years will force governments to make tough decisions regarding competing concerns for society, the environment and security. Short-term geo-economic risks are already impacting net-zero commitments, the report found.

Collective action is urgently needed to limit the effects of climate change, while security considerations and increasing military expenditures may leave fewer resources to cushion the blow of an ongoing cost-of-living crisis, the report found.

“Without a change in trajectory, vulnerable countries could reach a perpetual state of crisis where they are unable to invest in future growth, human development and green technologies,” the World Economic Forum said.

Balancing risk

The report said that world leaders needed to act collectively to balance short- and long-term risk. It recommended joint efforts between countries as well as public-private cooperation to strengthen financial stability, economic development and more.

“The short-term risk landscape is dominated by energy, food, debt and disasters,” said Saadia Zahidi, managing director of the World Economic Forum. “Those that are already the most vulnerable are suffering – and in the face of multiple crises, those who qualify as vulnerable are rapidly expanding, in rich and poor countries alike. In this already toxic mix of known and rising global risks, a new shock event – from a new military conflict to a new virus – could become unmanageable. Climate and human development therefore must be at the core of concerns of global leaders to boost resilience against future shocks.”

“The interplay between climate change impacts, biodiversity loss, food security and natural resource consumption is a dangerous cocktail,” said John Scott, head of sustainability risk at Zurich. “Without significant policy change or investments, this mix will accelerate ecosystem collapse, threaten food supplies, amplify the impacts of natural disasters and limit further climate mitigation progress. If we speed up action, there is still an opportunity by the end of the decade to achieve a 1.5°C degree trajectory and address the nature emergency. Recent progress in the deployment of renewable energy technologies and electric vehicles gives us good reasons to be optimistic.”

“2023 is set to be marked by increased risks related to food, energy, raw materials and cybersecurity, causing further disruption to global supply chains and impacting investment decisions,” said Carolina Klint, risk management leader for continental Europe at Marsh. “At a time when countries and organizations should be stepping up resilience efforts, economic headwinds will constrain their ability to do so. Faced with the most difficult geo-economic conditions in a generation, companies should focus not just on navigating near-term concerns but also on developing strategies that will position them well for longer-term risks and structural change.”

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