Climate issues top list of global risks, survey finds

Climate-related concerns have moved to the forefront of the World Economic Forum's annual Global Risks Report.

The 17th edition of the report, released this week, surveyed 1,000 business, government, and other leaders worldwide to find out what they see as the most pressing short-term and long-term risks to their organisations and the world at large.

Failure to act on climate change ranked No. 1 on the list of top ten global risks by severity over the next ten years (shown below). Five of the items on the list, including the top three, are related to the environment.

Top 10 global risks by severity

(over next 10 years)

1. Climate action failure
2. Extreme weather
3. Biodiversity loss
4. Social cohesion erosion
5. Livelihood crises
6. Infectious diseases
7. Human environmental damage
8. Natural resource crises
9. Debt crises
10. Geoeconomic confrontation

Extreme weather tops the list of short-term risks over the next two years. Livelihood crises ranked second on that list, followed by climate action failure.

Top 10 short-term global risks

(Over the next 0-2 years)

1. Extreme weather
2. Livelihood crises
3. Climate action failure
4. Social cohesion erosion
5. Infectious diseases
6. Mental health deterioration
7. Cybersecurity failure
8. Debt crises
9. Digital inequality
10. Asset bubble bust

"Our planet is on fire and we have to deal with it," said Borge Brende, the World Economic Forum president, in an article published by the organisation. "Risk reports show the cost of inaction far outweighing the cost of action."

A tangled web of worries

Despite the rapid growth of environmental, social, and governance (ESG) initiatives among businesses worldwide, efforts to combat climate change face significant challenges exacerbated by the COVID-19 pandemic and related economic fallout, which also threatens to further widen social and economic inequality. By 2024, advanced economies are predicted to have produced GDP 0.9% higher than pre-pandemic expectations. In contrast, developing countries (excluding China) will see their GDP fall 5.5% below pre-pandemic projections — widening the global income gap, the report said.

Global GDP is expected to be 2.3% smaller in 2024 than it would have been without the pandemic, the report said. The recent surge in COVID-19 cases, combined with inflation, rising commodity prices, and debt problems, may hamper the efforts of governments to facilitate a sustained recovery.

Other factors point to a widening gap in the recovery of economies globally. In some countries, high vaccination rates, successful digital transformations, and growth opportunities could produce a quick return to pre-pandemic trends and possibly a more resilient outlook long term. For many other countries, their economies may be held back by a lack of access to vaccines, continued stress on health systems, stagnant job markets, and widening digital divides.

Divergent economic trajectories will make it more difficult for governments to reach agreements to reduce carbon emissions to slow the rate of global warming, the report said.

An uneven recovery that leaves many livelihoods at risk and further widens wealth gaps could accelerate the deterioration of mental health and the erosion of social cohesion in countries worldwide. On top of that, the increased reliance on remote work and digital connections during the pandemic has led to a rise in cyberattacks that has been met with a cybersecurity response muted by the need to focus on COVID-19 and economic issues.

This trend could lead to major cybersecurity failures by governments and large organisations. That, in turn, could damage the trust in institutions and lead to geopolitical confrontations between states fighting cybercrime and those who sponsor it.

Another area of risk is in space. The rapidly growing number of satellites in orbit produces a greater risk of collisions with space junk, which could lead to satellites being damaged and critical services on Earth being adversely affected.

The tangled web of interconnected threats identified in the report is reflected in the responses to the question, "How do you feel about the outlook for the world?" Less than 16% of the 1,000 respondents said they felt positive or optimistic. In contrast, more than 83% indicated they are concerned or worried.

Recommendations for business

While the threats are daunting, the Global Risks Report identified four areas of opportunity for businesses to act.

• Small businesses could follow the lead of large enterprises and intensely analyse their business interruption risks across supply chains, managed service providers, utilities, and customers. The goal is to ease the impact of bottlenecks and outages.

• Nationally important businesses should look to build on the willingness to work with one another demonstrated during the pandemic. More broadly written codes of conduct could set out best-practice behaviours on an industry level for any future crises.

• Large employers, learning from the lessons of workforce and community resilience over the past two years, could build a resilience dimension into health and benefit offerings.

• Large companies can become more active in addressing large-scale public policy challenges that affect their business. While public funds tend to drive resilience efforts, businesses have the opportunity to drive innovation in an effort to reduce blind spots and counter stovepiping tendencies within government.

Climate of uncertainty

Despite the prevalence of intense near-term risks due to the pandemic and related economic and societal problems, the World Economic Forum stressed the need to take action now to address climate change.

The group pointed to its 2006 Global Risk Report, which warned of potential pandemics and other health-related threats, saying that a "lethal flu, its spread facilitated by global travel patterns and uncontained by insufficient warning mechanisms, would present an acute threat". Despite that warning, the world was unprepared as COVID-19 struck in 2020.

Leaders in the public and private sectors face similar challenges in inspiring action to reduce carbon emissions and take other steps to slow climate changes.

"Humans are not good in the boiling frog scenario, which is climate change," said Peter Giger, group chief risk officer, Zurich Insurance Group, "they're much better in the fight or flight scenario, which has been the pandemic."

— To comment on this article or to suggest an idea for another article, contact Jeff Drew at Jeff.Drew@aicpa-cima.ccom.