The world needs to wake up to long-term risks

The 16th edition of the World Economic Forum’s Global Risks Report was published in January 2021, alongside a call for the world to ‘wake up to long-term risks’. Gaurav Agrawal highlights the key conclusions from the report.

In 2020, the world saw the catastrophic effects of ignoring long-term risks – something the Global Risks Report has been ‘sounding the alarm on’ for the past 15 years. While the COVID-19 pandemic has shown the reality of such risks materialising, the emergence of vaccines provides a potential exit for this threat. However, other long-term risks, such as climate change and environmental concerns, do not have an immediate response to diminish risk. Instead, understanding and acting on the threat in advance provides the only chance to manage the risk and reduce its impacts.

“In 2020, the risk of a global pandemic became reality, something this report has been highlighting since 2006. We know how difficult it is for governments, business, and other stakeholders to address such long-term risks, but the lesson here is for all of us to recognise that ignoring them doesn’t make them less likely to happen. As governments, businesses and societies begin to emerge from the pandemic, they must now urgently shape new economic and social systems that improve our collective resilience and capacity to respond to shocks while reducing inequality, improving health and protecting the planet”
– Saadia Zahidi, Managing Director at the World Economic Forum.

The latest report analyses the risks from societal fractures—manifested through persistent and emerging risks to human health, rising unemployment, widening digital divides, youth disillusionment, and geopolitical fragmentation. Businesses risk a disorderly shakeout which can exclude large cohorts of workers and companies from the markets of the future. Environmental degradation—still an existential threat to humanity—risks intersecting with societal fractures to bring about severe consequences. With the world more attuned to risk, lessons can be drawn to strengthen response and resilience.

Key conclusions from the Global Risks Perception Survey (GRPS)

The report draws conclusions from analysis of over 800 responses to the latest GRPS, with risks categorised across five areas – economic, environmental, geopolitical, societal, and technological.

For the first time, the report rates risks according to when respondents perceive they will pose a critical threat to the world:

  • Clear and present dangers (0-2 years) reveal concern about lives and livelihoods, including infectious diseases, employment crises, digital inequality and youth disillusionment, economic stagnation, human-made environmental damage, deterioration of societal cohesion and terrorist attacks.

  • In the medium-term (3-5 years), respondents believe the world will be threatened by knock-on economic and technological risks, which may take several years to materialise – such as asset bubble bursts, IT infrastructure breakdown, price instability and debt crises, followed by geopolitical risks, including interstate relations and conflict, and resource geopolitisation.

  • Existential threats (5-10 years) – environmental risks such as biodiversity loss, natural resource crises and climate action failure dominate; alongside weapons of mass destruction, adverse effects of technology and collapse of states or multilateral institutions.

Over the next ten years, respondents perceive:

  • Among the highest likelihood risks are extreme weather, climate action failure and human-led environmental damage, digital power concentration, digital inequality, and cybersecurity failure.

  • Among the highest impact risks are infectious diseases, followed by climate action failure and other environmental risks, weapons of mass destruction, livelihood crises, debt crises, and IT infrastructure breakdown.

  • The main high impact and high likelihood risks are in two categories:
    • Societal: Infectious Diseases (new high ranking)
    • Environmental: Climate Action Failure, Biodiversity Loss, Human Environmental Damage, Natural Resource Crises, Extreme Weather (all are continuations of previous high rankings).

  • In the Technological category, two new risks displace Cyberattacks and Data Fraud or Theft that were rated high over the past four years:
    • Digital Power Concentration, defined as ‘Concentration of critical digital assets, capabilities and/or knowledge by a reduced number of individuals, businesses or states, resulting in discretionary pricing mechanisms, lack of impartial oversight, unequal private and/or public access etc.’
    • Digital Inequality, defined as ‘Fractured and/or unequal access to critical digital networks and technology, between and within countries, as a result of unequal investment capabilities, lack of necessary skills in the workforce, insufficient purchase power, government restrictions and/or cultural differences.’

Climate change continues to be perceived as a catastrophic risk. Pandemic lockdowns worldwide, through a reduction in human activity, have driven a reduction in global emissions in the first half of 2020. However, similar emissions reductions experienced during the market downturns of the 2008–2009 Global Financial Crisis were fleeting, and if this is any indication of the post-lockdown world, emissions are likely to bounce back when activity resumes. A shift towards greener economies cannot be delayed until the shocks of the pandemic subside. Climate action failure is the most impactful and second most likely long-term identified risk.

The top ten risks by likelihood and impact across the five categories are summarised in the report extract below.

Source: World Economic Forum Global Risks Perception Survey 2020

Reflections on responses to COVID-19

The report considers global responses to COVID-19, detailing lessons across five domains to bolster global resilience – government decision-making, public communication, health system capabilities, lockdown management, and financial assistance to the vulnerable.

However, if lessons from this crisis only inform decision-makers how to prepare for the next pandemic—rather than enhancing risk processes, capabilities, and culture—the world will again be managing through another crisis.

The responses to COVID-19 offer four key governance opportunities to strengthen the overall resilience of countries, businesses, and the international community, to act rather than react, in the face of cross-cutting risks:

  1. Formulating analytical frameworks that take a holistic and systems-based view of risk impacts;
  2. Investing in high-profile “risk champions” to encourage national leadership and international co-operation;
  3. Improving risk communications and combating misinformation; and
  4. Exploring new forms of public-private partnership on risk preparedness.

Foresight on Frontier Risks

The report closes with an overview of ‘frontier risks’ – nine high-impact, low-probability events drawn from experts’ insights to encourage more expansive thinking about the universe of risk possibilities in the next decade and enable preparation and resilience in the face of crisis. These are summarised in the report extract below and include geomagnetic disruption, accidental wars, and exploitation of brain-machine interfaces.

The full report is available here.

Source: World Economic Forum – The Global Risks Report 2021 16th Edition Insight Report

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