`. 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.
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ECONOMIC RISKS |
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| 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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