Strategy & Operations » Leadership & Management » World Economic Forum warns of ‘unprecedented’ risk landscape

CLIMATE change and large-scale involuntary migration are the two biggest threats facing the planet, according to the World Economic Forum on the eve of its annual gathering in Davos.

Published today, the World Economic Forum’s (WEF) 11th edition of its influential Global Risks Report, based on a survey of more than 750 experts, found that a collective failure to deal with climate change is deemed to be the biggest risk, closely followed by weapons of mass destruction and water crises. However negative impacts emanating from mass migration are the most likely to materialise.

“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,” said Cecilia Reyes, chief risk officer at Zurich Insurance.

“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.”

The threat of interstate conflict with regional consequences and major natural catastrophes are also top threats, the report finds.

Such a broad risk landscape is “unprecedented” in the 11 years the report has been measuring global risks and 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.

In a gloom-laden series of predictions, the experts found mounting evidence that inter-connections between risks are becoming stronger, citing the examples of climate change and involuntary migration or international security, often leading to major and unpredictable impacts.

The two most interconnected risks – profound social instability and structural unemployment or under-employment – account for 5% of all interconnections. Knowledge of such interconnections is critical if leaders are to prioritise areas for action, and plan for contingencies, it states.

“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 global competitiveness and risks at the World Economic Forum.

Data 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. According to the reprot, a warming climate is likely to raise the global average surface temperature to the milestone of 1°C above the pre-industrial era for the first time. And the number of people forcibly displaced in 2014 stood at 59.5 million according to UNHCR, almost 50% more than in 1940.

John Drzik, president, global risk and specialties, at consultancy Marsh, said: “Events such as Europe’s refugee crisis and terrorist attacks have raised global political instability to its highest level since the Cold War. This is 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.”