Every year, the World Economic Forum (WEF) releases an updated list of the top risks to business based on its survey to 750 members of the organization’s global community of academics and business leaders.
The essentials of this year’s Global Risks report provide an introduction to the potential pitfalls that could impact markets around the globe.
Of the top global risks by impact, the WEF has rated “failure of climate change mitigation and adaptation” as the highest impact. In terms of probability, “large-scale involuntary migration” took the cake.
In general, economic risks such as “energy price shock”, “fiscal crises”, and “asset bubble collapse” are fairly prominent. Environmental risks are also high, with the organization foreseeing potential “water crises” and the possibility of an “ecosystem collapse” in the near future.
The top 5 gobal risks to business in terms if likelihood and impact have changed significantly over the last decade. Economic risks predominate this year’s in responses from Europe, including social crises, unemployment, asset bubbles and energy prices, while executives in the United States are most concerned about cyber-related risks and attacks. Respondents from Central Asia and Russia worry about social crises and unemployment, along with the risks of unmanageable inflation and interstate conflict. Environmental risks worry business leaders in East Asia and the Pacific, alongside energy prices, asset bubbles, and cyber attacks.
This year marks a forceful departure from past findings, as the risks are starting to manifest themselves in new, sometimes unexpected ways and harm people, institutions and economies.
Warming climate is likely to raise this year’s temperature to 1° Celsius above the pre-industrial era, 60 million people, equivalent to the world’s 24th largest country and largest number in recent history, are forcibly displaced. Crimes in cyberspace cost the global economy an estimated 445 billion USD higher than many economies’ national incomes.
With view to the top global risks of highest concern, results get more interesting as we pare down responses based on two very different time horizons.
First, the risks that were of the highest concern to business leaders within the next 18 months. Here, societal, geopolitical, and economic risks take center stage.
These contrast greatly with the next list, which sums up the risks of highest concern over a longer time horizon of 10 years. It’s all environmental and societal, with concerns about water, food and weather/climate dominating the bunch.
It remains to be seen, whether the adoption of the ‘Paris Agreement’ on 12 December 2015 by 195 governments becomes a major turning point in the global fight against climate change. The world’s nations agreed to limit global average temperature rise to “well below 2°C above pre- industrial levels and to pursue efforts to limit the temperature increase to 1.5°C above pre-industrial levels”. They also agreed to a review mechanism that will help ratchet up efforts every five years from 2018, as well as a floor for financial flows to developing countries.
Amazon founder and CEO Jeff Bezos thinks we need to build industrial zones in space in order to save Earth. “Let me assure you, this is the best lplanet. We need to protect it, and the way we will is by going out into space. You don’t want to live in a retrograde world where we have to freeze population growth.”
Bezos says tasks that require lots of energy shouldn’t be handled on Earth. “Energy is limited here. In at least a few hundred years all of our heavy industry will be moved off-planet. Earth will be zoned residential and light industrial. You shouldn’t be doing heavy energy on earth. We can build gigantic chip factories in space.”
Besides this WEF-risk-update, another global organization came forward this week with a rather bleak picture. The global economy is caught in a vicious cycle of low growth, and even the limited improvements that could be possible over the next few years face several severe risks, the Paris-based OECD (Organization for Economic Cooperation and Development) warned in a major report (or take a look the short Handout for the press (PDF)).
With all these big societal, environmental or macro-economic risks in mind, just don’t underestimate the risk you face as an investor, business-owner or consumer by human flaws, greed or fraud.
Take Elizabeth Holmes, the founder of Theranos, a biotech company which offers blood tests from a single finger prick at a cut rate price. The attractive business-women dominated headlines, received a ‘Glamour Women of the Year Award’ and gained a place on the top of Forbes’ self-made list with, after her 50% stake in Theranos shot up to 4,5 billion USD. However, the young lady went from hero to zero in just a few months after it emerged Theranos was being investigated by a large number of federal agencies over allegations its tests were inaccurate.
Even when things are going well, it’s important to mitigate your risk wherever possible and have a backup plan in case your fortunes take a turn for the worse.
Amazon boss Jeff Bezos wants to build industrial zones in space in order to save Earth.
From hero to zero in just a few months: Theranos founder Elizabeth Holmes.
The top 5 gobal risks to business have changed significantly over the last decade.