The World Economic Forum, meeting in Davos Switzerland this week, has identified water as the number one global risk for business and society in the coming decade.
The World Economic Forum’s Global Risks Report 2016 says that risks are on the rise in 2016, with evidence is mounting that inter-connections between risks are becoming stronger, for example climate change and involuntary migration or international security, often with major and unpredictable impacts.
Failure of climate-change mitigation and adaptation is the number one global risk in terms of impact. Large-scale involuntary migration tops the list of risks in terms of likelihood and is the fastest rising in terms of both impact and likelihood. Cyberattacks are now considered the greatest risk to doing business in North America.
Environmental risk tops ranking for first time
In this year’s annual survey, almost 750 experts assessed 29 separate global risks for both impact and likelihood over a 10-year time horizon. The risk with the greatest potential impact in 2016 was found to be a failure of climate change mitigation and adaptation. This is the first time since the report was published in 2006 that an environmental risk has topped the ranking. This year, it 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).
The number one risk in 2016 in terms of likelihood, meanwhile, is 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 Forum says that such a broad risk landscape is unprecedented in the 11 years the report has been measuring global risks. For the first time, four out of five categories – environmental, geopolitical, societal and economic – feature among the top five most impactful risks. The only category not to feature is technological risk, where the highest ranking risk is cyberattack, in 11th position in both likelihood and impact.
According the report, 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 1°C 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.
In addition to measuring their likelihood and potential impact, the Global Risks Report 2016 also examines the interconnections among the risks. The data suggests a convergence may be occurring, with a small number of key risks wielding great influence.
“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,” said Margareta Drzeniek-Hanouz, Head of the Global Competitiveness and Risks, World Economic Forum.
Environmental risks have come to prominence in the global risks landscape in 2016, despite the presence on the horizon of a large number of other, highly visible risks.
“Climate change is exacerbating more risks than ever before'
“Climate change is exacerbating more risks than ever before in terms of water crises, food shortages, constrained economic growth, weaker societal cohesion and increased security risks. Meanwhile, geopolitical instability is exposing businesses to cancelled projects, revoked licenses, interrupted production, damaged assets and restricted movement of funds across borders. These political conflicts are in turn making the challenge of climate change all the more insurmountable – reducing the potential for political co-operation, as well as diverting resource, innovation and time away from climate change resilience and prevention,” said Cecilia Reyes, Chief Risk Officer of Zurich Insurance Group.
The report flags up what it calls a potential black swan event in the area of technological risk. While cyberattacks rises slightly in terms of likelihood and impact in 2016, others, including failure of critical information infrastructure, appear to be declining as a risk in the eyes of experts. Technological crises have yet to impact economies or securities in a systemic way, but the risk still remains high, something that potentially may not have been fully priced in by experts. This would appear to be the view of a growing number of business leaders - WEF's separate survey of business leaders assessing risks for doing business finds cyberattacks to be the top risk in no fewer than eight countries, including the USA, Japan, Germany, Switzerland and Singapore.
Click here to read the report in full.