Rainer Egloff of Swiss Re takes a look at a new report which highlights the changing nature of risk worldwide and identifies ways to tackle emerging threats
The eighth edition of the Global Risks Report, issued by the World Economic Forum, highlights global risks and their interconnections. Together with a handful of university and industry partners who deal with risk on a daily basis, including Swiss Re and Zurich Insurance Group, the WEF surveys, maps and narrates eminent current risks with a global dimension. The findings are based on an expert survey with over 1,000 respondents who rate 50 preselected environmental, geopolitical, societal or technological risks. What emerges is a consolidated risk perception of how likely emerging risks are and what impact they will have within the next 10 years.
At first glance, this year's picture contains few surprises: The world is perceived as being even riskier than last year. The vast majority of the 50 risks were rated higher in 2013, although the top risk ratings were fairly consistent. Compared to last year's report, severe income disparity, chronic fiscal imbalances, and rising greenhouse gas emissions remain unchanged as the top three risks. In terms of impact, major systemic financial failure and water supply crises are seen as the top two most threatening risks. 'Chronic fiscal imbalances' moves up one rank to replace 'Food shortage crises' in third place.
The entire global risk perception survey, including a detailed analysis in an extensive appendix, may appear a bit technical. However, the feature stories of the report make a good read. A section on 'X Factors', developed in collaboration with the leading scientific journal Nature, discusses unexpected emerging risks such as significant cognitive enhancement or the rogue deployment of climate-impacting geo-engineering.
The core of the Global Risks Report consists of three extensive case studies. These are centred on important risk constellations which were picked up in the risk perception survey. The first case - which is the one most relevant to re/insurance - describes the growing tension between the need to stimulate national economies and the investment needed to prevent climate change getting out of hand. This case study promotes a comprehensive approach and emphasises the immense long-term cost of global warming caused by increased extreme weather, droughts, flooding and sea level rise.
According to the report, we need to address the cognitive bias to focus on the immediate future. It stresses that we need to explore new approaches with a 'climate-smart' mindset. This includes combining climate change adaptation and mitigation measures, for example, by reducing exposure and vulnerability to the effects of climate as well as trying to reduce greenhouse gas emissions. Such synergetic strategies are suggested as an integral part of urban planning, water and food security management, and investment policy, among others.
The report favours public-private partnerships to address the current shortfall in green infrastructure investment. The Green Growth Action Alliance (G2A2), which includes over 50 leading companies from finance, infrastructure, energy and agriculture sectors, as well as public institutions, is given as an example of how we might aim to unlock greater sums of private investment for green infrastructure.
The two other major risk cases featured in the report are devoted to the dangers of the internet and health risks related to rising bacterial resistance to antibiotics. The internet case study focuses on the potential misuse of new digital media technologies. Propaganda, misinformation and defamation can be spread at light speed and at very low cost, easily causing uproar and violence, as in the recent case of an anti-Islamic video on YouTube. This touches upon freedom of speech issues, limitations of national laws and the possibilities of sophisticated technologies. The report advocates attempts to increase critical new media literacy and a debate on how to cultivate a 'global digital ethos'.
The health case study points to the lack of new antibiotics developed in response to spreading antibiotic resistant bacteria. The authors warn against complacency in face of the successes of modern medicine. They argue for innovation-friendly intellectual property regimes and other incentives for research and development. On the other hand, they say, overuse of antibiotics has to be moderated.
This year's special report is concerned with building national resilience to global risks. It takes issue with the fact that in an ever more globalised and interconnected world, big risks are international by origin and potential, but responsibility for dealing with their effects still remains with nation states. The special report provides some conceptualisations of national resilience and ways for comparison. Some preliminary findings are also derived from the risk perception survey. For example, the United Kingdom, Germany and Switzerland score highest regarding governmental risk management effectiveness and overall competitiveness. The special report is understood as sort of a preview on a much larger report in its own right which the World Economic Forum plans to issue on a yearly basis to complement its reports on global risks and on global competitiveness.
The Global Risks Report can be downloaded from the World Economic Forum's webpage: http://reports.weforum.org/global-risks-2013/
Rainer Egloff is senior risk manager in emerging risk management at Swiss Re