Global Risk Report 2014–Identifying Global Risks


`.  INTRODUCTION

The World Economic Forum puts out a Global Risk Report every year, and the report for this year 2014 they put out their report in January.   The first process in risk management is identifying risks.   The WEF has taken a different tack in 2014.   They started out with 25 risks divided into 5 categories, and then they increased that number to 50 risks in 2012 and 2013.  In 2014 they are streamlining the process to include any intermediary number of 31 risks, which are as before divided into 5 categories:  economic, environmental, geopolitical, social, and technological.

The definition of a global risk used is an occurrence that causes significant negative impact for several countries and industries, and that occurrence is something which expected to appear within the next 10 years.

Here are some examples of risks which manifested in 2013 in each of these 5 categories.

  • Economic (fiscal crisis in the US)
  • Environmental (Typhoon Haiyan in the Philippines)
  • Geopolitical (Syria’s refugee crisis)
  • Social (record income disparity in the US)
  • Technological (Massive data theft from Target in the US)

The fact that I have included three examples from the US is related to the fact that I live in the US.   This shows an example of bias, in that the risks I pay attention to are those in my immediate experience.   The WEF has tried to avoid that geographical bias by asking 700 leaders from all over the world.

2.  IDENTIFIED GLOBAL RISKS

Here is a chart of the 31 risks divided into the 5 categories mentioned above.   This is taken from Appendix A of the Global Risk Report 2014.

 

ECONOMIC RISKS

E1.  Fiscal   crises in key economies Excessive debt burdens generate rising interest   rates, inflationary pressures and sovereign debt crises
E2.  Failure of   a major financial mechanism or institution A financial institution or currency regime of   systemic importance collapses, with implications throughout the global   financial system
E3.  Liquidity   crises Shortages of financial resources from banks and   capital markets become extreme and recurring, while the ability to sell   assets is reduced
E4.  Structurally   high unemployment and/or underemployment A sustained high level of unemployment that is   structural rather than cyclical in nature coincides with a rising skills gap   and high underemployment, especially among youth populations
E5.  Oil-price   shock to the global economy Sharp and/or sustained oil price increases place   further economic pressures on highly oil-dependent industries and consumers,   while raising geopolitical tensions
E6.  Failure/shortfall   of critical infrastructure Chronic failure to adequately invest in, upgrade and   secure infrastructure networks leads to a major breakdown, with system-wide   implications
E7.  Decline of   importance of the US dollar as a major currency A shift away from the US dollar as the world’s   reserve currency impacts the global economic and financial system, and   changes the geopolitical balance
ENVIRONMENTAL RISKS
EV1.  Greater   incidence of extreme weather events (e.g. floods, storms, fires) Property, infrastructure and environmental damage   linked to development in hazard-prone areas increases, as does the frequency   of extreme weather events
EV2.  Greater   incidence of natural catastrophes (e.g. earthquakes, tsunamis, volcanic   eruptions, geomagnetic storms) Existing precautions and preparedness measures fail   in the face of geophysical disasters such as earthquakes, volcanic activity,   landslides, tsunamis or geomagnetic storms, causing widespread disruptions in   interconnected supply chains and communication networks
EV3.  Greater   incidence of man-made environmental catastrophes (e.g. oil spills, nuclear   accidents) Existing precautions and preparedness measures fail   to prevent man-made catastrophes, causing greater harm to lives, human health,   infrastructure, property, economic activity and the environment
EV4.  Major   biodiversity loss and ecosystem collapse (land and ocean) Degradation of biodiversity results in severely   depleted resources for industries such as fishing and forestry, with potentially   irreversible consequences for the environment
EV5.  Water   crises A significant decline in the quality and quantity of   fresh water combines with increased competition among resource-intensive   systems, such as food and energy production
EV6.  Failure   of climate change mitigation and adaptation Governments and businesses fail to enforce or enact   effective measures to protect populations and to help businesses impacted by   climate change to transition
GEOPOLITICAL RISKS
G1.  Global   governance failure Weak or inadequate global institutions, agreements or   networks, combined with competing national and political interests, impede   attempts to cooperate on addressing global risks
G2.  Political   collapse of a nation of geopolitical importance One or more systemically critical countries   experience significant erosion of trust and mutual obligations between states   and citizens, leading to state collapse, internal violence, regional or   global instability and, potentially, military conflict
G3.  Increasing   corruption The widespread and deep-rooted abuse of entrusted   power for private gain (by businesses and public officials) undermines the   rule of law and governance
G4.  Major escalation in organized crime and   illicit trade Highly   organized and very agile global networks commit criminal offences while the   illegal trafficking of goods and people spreads unchecked throughout the   global economy
G5.  Large-scale terrorist attacks Individuals or   non-state groups successfully inflict large-scale human or material damage,   which is particularly problematic when decentralized and widespread
G6.  Deployment of weapons of mass destruction The   availability of nuclear, chemical, biological and radiological technologies   and materials leads to major international crises
G7.  Violent inter-state conflict with regional   consequences International   disputes escalate into armed conflicts
G8.  Escalation of economic and resource   nationalization States move   unilaterally to ban imports or exports of key commodities, stockpile reserves   and expropriate natural resources
SOCIETAL RISKS
S1.  Food crises Access to   appropriate quantities and quality of food and nutrition becomes inadequate   or unreliable
S2.  Pandemic outbreak Inadequate   disease surveillance systems, failed international coordination and the lack   of vaccine production capacity lead to the uncontrolled spread of infectious   disease
S3.  Unmanageable burden of chronic disease Increasing   burden of illness and long-term costs of treatment threaten recent societal   gains in life expectancy and quality while overburdening strained economies
S4.  Severe income disparity Widening gaps   between the richest and poorest citizens threaten social and political   stability as well as economic development
S5.  Antibiotic-resistant bacteria Growing   resistance of deadly bacteria to known antibiotics inhibits the ability to   control deadly diseases
S6.  Mismanaged urbanization (e.g. planning   failures, inadequate infrastructure and supply chains) Poorly planned   cities, urban sprawl and associated infrastructure amplify drivers of   environmental degradation and cope ineffectively with migration, demographic   and health challenges
S7.  Profound political and social instability Military   actions or aggressive foreign or trade policies on the part of global or   regional powers disrupt political or social stability, negatively impacting   populations, investment and financial markets
TECHNOLOGICAL   RISKS
T1.  Breakdown of critical information   infrastructure and networks Systemic   failures of critical information infrastructure (CII) and networks negatively   impact industrial production, public services and communications
T2.  Escalation in large-scale cyber attacks State-sponsored,   state-affiliated, criminal or terrorist cyber attacks increase
T3.  Massive incident of data fraud/theft Criminal or   wrongful exploitation of private data takes place on an unprecedented scale

3.  CONCLUSION

The majority of the 31 risks are practically equally divided between the four categories of economic, environmental, geopolitical, and social risks.   There are a relatively small number (3) of technological risks.

The next step in risk management is performing qualitative analysis, which assigns to each risk a probability, a potential impact, and a level of concern.   That is the subject of the next post.

 

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