The World Economic Forum has published its Global Risks 2014 report which puts water risks ahead of failures in climate change mitigation and adaptation and the greater incidence of extreme weather events as a key threat to global economic growth.

Fiscal crises feature as the global risk that experts believe has the potential to have the biggest impact on systems and countries over the course of the next 10 years, followed by structurally high unemployment/underemployment in second place and water crises in third.

The chronic gap between the incomes of the richest and poorest citizens is the risk that is most likely to cause serious damage globally in the coming decade, according to over 700 global experts that contributed to the report.

Water crises are one of six key environmental risks addressed in the report. The others are:

• Greater incidence of extreme weather events (e.g. floods, storms, fires)
• Greater incidence of natural catastrophes (e.g. earthquakes, tsunamis, volcanic eruptions, geomagnetic storms)
• Greater incidence of man-made environmental catastrophes (e.g. oil spills, nuclear accidents)
• Major biodiversity loss and ecosystem collapse (land and ocean)
• Failure of climate change mitigation and adaptation

A detailed commentary by the Global Agenda Council on Water Security in the report says it is hardly surprising, given the devastating impacts of having too little water, or too much, that water crises and extreme weather events have been identified by the World Economic Forum community as two of the top 10 global risks. While water’s immediate impacts are often local, water security is now recognized as a systemic global risk.

In 2010, floods in Pakistan paralysed large parts of the country for many weeks, killing thousands of people and wrecking the rural economy. Thailand’s slow-onset flood in 2011 caused fewer deaths but showed how one local event could have an impact across the world: global car production slowed as supplies of components were cut, and hard-drive manufacture for the world’s computers was slashed. Similarly, Japan’s GDP and global industrial production dipped significantly following the tsunami of March 2011.

Too little water can also have systemic impacts. The report  cites drought in Russia in 2010 led to restrictions on agricultural exports, causing the price of staple grains to rise across North Africa and the Middle East. The resulting food shortages and price rises aggravated the tensions that led to the Arab Spring. Some studies suggest that water scarcity could reduce grain production by as much as 30%.

The Council says in the report that because of the systemic importance of water for global economic activity, any failings in its planning, management and use in one country can ripple across the world.

They also highlight the fact that water management is becoming increasingly complex and difficult as populations expand and people grow wealthier, demanding more freshwater to supply cities and factories and consuming more foods, such as dairy and meat, that need more water to produce.. While the world population grew fourfold in the 20th century, freshwater withdrawals grew nine times.

Beyond water quantity, water quality is identified as another critical issue. Pollution incidents have paralysed business operations in parts of China and elsewhere, disrupting global value chains and damaging corporate reputations – poor water quality or shortages are often blamed on business operations even when businesses comply fully with regulatory requirements.

The overarching prescription for a response by the global community is for a package of investments in information, institutions and infrastructure.

Taking a 10-year outlook, the report assesses 31 risks that are global in nature and have the potential to cause significant negative impact across entire countries and industries if they take place. The risks are grouped under five classifications – economic, environmental, geopolitical, societal and technological – and measured in terms of their likelihood and potential impact.

The report defines a global risk as an occurrence that causes significant negative impact for several countries and industries over a time frame of up to 10 years. A key characteristic of global risks is their potential systemic nature – they have the potential to affect an entire system, as opposed to individual parts and components.

Click here to download the report in full.