New global risks could hinder progress on climate, report findsExperts across industries warn that environmental issues carry the most severe long-term impacts and that measures to prepare for climate change are ineffective.
The new decade continues to test businesses around the world, and with new financial risks surfacing each year, many older concerns including climate change and biodiversity loss may not be a top priority for business leaders as current economic disruptions take focus, a new report says.
While problems such as the cost-of-living crisis have been raised as the leading short-term risk from experts across sectors, the report found, environmental issues are the top long-term concerns across the board — the very problems that businesses are least prepared to handle.
The Global Risks Report 2023 from the World Economic Forum (WEF) brought together leading insights on the evolving global risks landscape from over 1,200 experts across academia, business, government, the international community, and civil society. The survey data for the report's 18th edition was gathered from September to October 2022.
"As 2023 begins, the world is facing a set of risks that feel both wholly new and eerily familiar," the report said. "… Together, these are converging to shape a unique, uncertain, and turbulent decade to come."
The cost-of-living crisis bubbled to the top of global short-term risks (over the next two years) as the Russia-Ukraine war and the aftereffects of the pandemic "ushered in skyrocketing inflation, a rapid normalization of monetary policies and started a low-growth, low-investment era," the report said.
Following that crisis on the short-term list are natural disasters and extreme weather events, geoeconomic confrontation, and failure to mitigate climate change. The top four severe global long-term risks (over ten years) all focus on climate: failure to mitigate climate change, failure of climate-change adaptation, natural disasters and extreme weather events, and biodiversity loss and ecosystem collapse.
In terms of long-term global risks, the findings align with many of the results of the 2022 report from the WEF.
As current crises divert resources from risks arising over the medium to longer term, the burdens on natural ecosystems will grow, given their still undervalued role in the global economy and overall planetary health, the report said. Seventy per cent of survey respondents rated their existing measures to prevent or prepare for climate change as "ineffective" or "highly ineffective".
While current pressures should result in a turning point, encouraging energy-importing countries to invest in cleaner and cheaper renewable resources, geopolitical tensions and economic pressures have limited and, in some cases, reversed progress on climate mitigation, the report said.
The WEF's report is a call to action for business leaders around the world to prepare for more volatility ahead. Many leaders across industries are already measuring environmental, social, and governance (ESG) data to understand their own company's risk profile and to prepare for obstacles in the short and long term.
Greater levels of uncertainty should shift the focus from the probable to the possible: The study of potential outcomes needs to be expanded to ensure that risk mitigation and preparedness addresses the full scope of possible impacts, the report said.
The report recommends that businesses strengthen their risk identification and foresight; recalibrate the present value of future risks; invest in multi-domain risk preparedness; and strengthen preparedness and response cooperation in order to best manage current and future shocks.
— To comment on this article or to suggest an idea for another article, contact Steph Brown at Stephanie.Brown@aicpa-cima.com.