January 14, 2016 by Canadian Underwriter
The failure of climate change mitigation and adaptation has been cited as the number one global risk with the greatest potential impact in 2016, according to the World Economic Forum (WEF). In Canada, energy prices were cited as the top concern.
The Global Risks Report 2016 report, released on Thursday, involved nearly 750 experts and decision-makers from business, academia, civil society and the public sector. The experts considered 29 global risks, categorized as societal, technological, economic, environmental or geopolitical, for both impact and likelihood over a 10-year time horizon. [click image below to enlarge]
Failure of climate change mitigation and adaptation was found to be the risk with the greatest potential impact in 2016 – the first time since the report was published in 2006 that an environmental risk has topped the ranking, said a press release from Marsh and McLennan Companies, a strategic partner of the report. The second greatest risk was weapons of mass destruction, followed by water crises (3rd), large-scale involuntary migration (4th) and severe energy price shock (5th).
“Climate change is exacerbating more risks than ever before in terms of water crises, food shortages, constrained economic growth, weaker societal cohesion and increased security risks,” said Cecilia Reyes, chief risk officer of Zurich Insurance Group, another strategic partner of the report. “Meanwhile, geopolitical instability is exposing businesses to cancelled projects, revoked licenses, interrupted production, damaged assets and restricted movement of funds across borders. These political conflicts are in turn making the challenge of climate change all the more insurmountable – reducing the potential for political co-operation, as well as diverting resource, innovation and time away from climate change resilience and prevention.”
In terms of likelihood, the report said, the number one risk in 2016 is large-scale involuntary migration, followed by extreme weather events (2nd), failure of climate change mitigation and adaptation (3rd), interstate conflict with regional consequences (4th) and major natural catastrophes (5th).
In Canada, energy prices were cited as the top concern. Energy price shock to the global economy tops the list of concerns in Canada, with the commodity price drop hurting the Canadian economy and GDP growth projected to be around 1% in 2015, compared with 2.4% in 2014,” the report said. “The risks of asset bubble and cyberattacks come second and third in Canada (fifth and first in the United States, respectively).”
In North America, “cyberattacks are now considered the greatest risk to doing business,” the release said. “In North America, which includes the United States and Canada, two risks have been selected as being among the five of highest concern for doing business in both countries: cyberattacks and asset bubbles,” the report added. “In the United States, the top risk is cyberattack, followed by data fraud or theft (the latter is in 7th position in Canada).”
Such a broad risk landscape is unprecedented in the 11 years the report has been measuring global risks. For the first time, four out of five categories – environmental, geopolitical, societal and economic – feature among the top five most impactful risks. The only category not to feature is technological risk, where the highest ranking risk is cyberattack, in 11th position in both likelihood and impact.
Geopolitical risks, one of which – interstate conflict with regional consequences – was 2015’s most likely risk, are also present. While interstate conflict has dropped to fourth in terms of likelihood, weapons of mass destruction ranks as the second most impactful risk, one place higher than last year and its highest ranking ever in the report.
While cyberattacks rise slightly in terms of likelihood and impact in 2016, others, including failure of critical information infrastructure, appear to be declining as a risk in the eyes of experts, the release said. “Technological crises have yet to impact economies or securities in a systemic way, but the risk still remains high, something that potentially may not have been fully priced in by experts.”