The Global Risks Report 2016 – World Economic Forums
Over the past decade, The Global Risks Report has expanded its scope from analysing the interconnected and rapidly evolving nature of global risks to also putting forward actionable solutions and calling for publicprivate collaboration in strengthening resilience. Now in its 11th edition, the Report describes a world in which risks are becoming more imminent and have wide-ranging impact: tensions between countries affect businesses; unresolved, protracted crises have resulted in the largest number of refugees globally since World War II; terrorist attacks take an increasing toll on human lives and stifle economies; droughts occur in California and floods in South Asia; and rapid advances in technologies are coupled with evergrowing cyber fragilities and persistent unemployment and underemployment.
Implications of sweeping digitization (also termed the “Fourth Industrial Revolution”), ranging from transformations that are the result of rising cyber connectivity to the potential effects of innovations on socioeconomic equality and global security, remain far from fully understood. At the same time, climate change is unequivocally happening, and there is no turning back time.
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The increasing volatility, complexity and ambiguity of the world not only heightens uncertainty around the “which”, “when”, “where” and “who” of addressing global risks, but also clouds the solutions space. We need clear thinking about new levers that will enable a wide range of stakeholders to jointly address global risks, which cannot be dealt with in a centralized way.
Taken together, this calls for a resilience imperative – an urgent necessity to find new avenues and more opportunities to mitigate, adapt to and build resilience against global risks and threats through collaboration among different stakeholders.
By putting the resilience imperative at its core, this year’s Global Risks Report combines four parts to present an analysis of different aspects of global risks – across both global risks and stakeholders – focused as much on the search for solutions as on the analysis of the risks themselves.
Part 1 analyses the difference in risk perceptions over different time horizons and the perceived interconnections among risks, as visualized in the Global Risks Landscape 2016, all based on the Global Risks Perception Survey, which combines the views of different stakeholders. Three risk interconnection clusters stand out: climate change in relation to water and food crises; the growing challenges of the rising number of displaced people worldwide; and what the Fourth Industrial Revolution means in an era of economic risks.
Part 2 discusses the implications of a changing international security landscape and identifies the drivers that are at work and the implications for addressing global risks. Inspired by the results of The Global Risks Report 2015 and the continued instability of the global security situation, it lays out alternative and plausible futuresthat could materialize unless there is a change in how we respond and manage the forces at play.
Part 3 explores three risks clusters that have the potential to challenge social stability. For each of these “Risks in Focus”, it describes three existing, practical initiatives that could help to build resilience. The concept of the (dis)empowered citizen is introduced to describe the tensions created by growing cyber connectivity that empowers citizens at the same time as they feel increasingly disenfranchised from traditional decision-making processes. The second contribution further explores one impact of climate change: coupled with rising population growth, it is threatening food security. Finally, in the wake of the Ebola crisis, the potential of pandemics to threaten social cohesion is discussed.
Part 4 applies the resilience imperative to one specific stakeholder – the business community – with an analysis at country and regional levels. Drawing on a unique data set of more than 13,000 business leaders in 140 economies, it explores the differing landscape of global risks across regions and offers a deep-dive into five of the six most cited global risks worldwide. Its aim is to inform the discussion of which risks to prioritize in order to build resilience within businesses.
Part 1: Global Risks 2016
From the refugee crisis to economic slowdowns in emerging markets, from ever-rising numbers of terrorist and cyberattacks to water shortages, global risks have been in the headlines in the last year. Yet so have initiatives to address them, such as the COP21 meeting on reducing greenhouse gas emissions or European Union (EU) summits to address the refugee crisis.
The Global Risks Report exists to raise awareness about global risks and their potential interconnections, and to provide a platform for discussion and action to mitigate, adapt and strengthen resilience.
There is remarkable stability in this year’s Global Risks Landscape (Box 1.1): many risks that are assessed as above average in terms of likelihood and impact were similarly assessed last year. This suggests the emergence of a new status quo, with geopolitical risks – such as interstate conflict or terrorist attacks2 – being at the forefront. Other risks rated as highly impactful or likely, such as involuntary migration and social instability, are partly a result of spillover effects of insecurity and conflict. Some geopolitical risks – such as the failure of national governance, which is pervasive across Latin America and Sub-Saharan Africa (see Figure 3) and considered to be among the top three most likely risks in the Middle East and North Africa, East Asia and the Pacific, and Central Asia – are considered to be important in some regions but not globally impactful. Consistent with the past, weapons of mass destruction is ranked as the second least likely risk to occur, but the second most impactful if it were to. Part 2 of this Report explores the international security landscape and how it could evolve in future.
Also prominent in the Global Risks Landscape 2016 are environmental risks such as failure of climatechange mitigation and adaptation, which is considered the most potentially impactful risk and the third most likely, with water crises, biodiversity loss and ecosystem collapse rising up the list of concerns. Environmental worries have been at the forefront in recent years (Figure 1.1.1), reflecting a sense that climate change–related risks have moved from hypothetical to certain because insufficient action has been undertaken to address them.
Figure 1.1 shows risks that have registered the highest increases and declines in perceptions of likelihood and impact, notably large-scale involuntary migration, now rated as the most likely and fourth most impactful. Other risks gaining in prominence on both dimensions include profound social instability – also one of the most highly interconnected risks, as shown in Figure 2.
The economic risks of unemployment and underemployment, asset bubbles, and fiscal crises in key economies have increased in both likelihood and impact over the past two years, although these have been overtaken by other concerns. At the same time, cyber threats remain at the top of respondents’ minds, as in previous years.
To tease apart short- and longerterm thinking and shed light on the psychology behind the responses, the survey asked experts to nominate risks of highest concern over two time horizons: 18 months and 10 years. Global risks that have recently been in the headlines – such as large-scale involuntary migration, interstate conflict and cyberattacks – tend to feature higher as short-term concerns, indicating that recent events significantly influence our thinking about risks and, hence, stakeholder action.
The longer-term concerns are more related to underlying physical and societal trends, such as the failure of climate change mitigation and adaptation, water crises and food crises. Interestingly, extreme weather events and social instability are considered a concern in both the short and long term, reflecting an expectation that the frequency and intensity of crises will continue to rise. One of the roles of this Report is to raise awareness about the importance of long-term thinking about global risks – especially significant when it comes to attempting to limit the extent of climate change and to adapt to the change that is already inevitable.
Three risk clusters are discussed in more detail below: the cluster linking the failure of climate change mitigation and adaptation with water crises and large-scale involuntary migration; the cluster linking large-scale involuntary migration with a range of risks related to social and economic stability; and the cluster linking economic global risks with uncertainty around the impacts of the Fourth Industrial Revolution.
Coping with the Changing Climate
Climate change and water crises, which have featured prominently in the Global Risks Landscape over the last five years, are joined this year by largescale involuntary migration. The links among these risks appear clearly in the Global Risks Interconnections Map 2016 (Figure 2), and the intertwined challenges are unfolding against a background of many socio-economic pressures.
As illustrated by the Global Risks Interconnections Map, climate change and water risks are intricately linked to food security concerns – a subject explored further in Part 3 of this Report. About 70% of the world’s current freshwater withdrawals are used for agriculture, rising to over 90% inmost of the world’s least-developed countries.4 Carbon dioxide also causes ocean acidification, which makes it harder for small shellfish to form the calcium carbonite shells they need to grow – with implications rising up the food chain, threatening the availability of food from the seas as well.
Challenges around water management are already immense. On the one hand, over a billion people lack access to improved water. Some 2.7 billion – or 40% of the world’s population – suffer water shortages for at least a month each year.6 The Organization for Economic Co-operation and 2030 across Asia.10 Globally, based on current trends, water demand is projected to exceed sustainable supply by 40% in 2030.11 Adding to the pressures, agricultural production will have to increase in the coming decades to feed a growing population and a rising demand for meat.
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