How Did the Global Risk Report Become Existential?

Mid-January saw the publication of the annual World Economic Forum (WEF) “Global Risks Report” timed to set the agenda during this week’s WEF Annual Meeting in Davos.

With each new edition – and this year’s edition is the fifteenth, inevitably, one first turns to the opening page of the report, to discover the Top Five Global Risks for 2020, in terms of their “likelihood” and “impact”. What has been trending and what has slipped down the chart?

Davos, Switzerland – location for the World Economic Forum annual meetings

In the early years of the report, the risks were almost all economic, and between 2007-10, environmental risks did not feature in the top five at all. As the financial crash of 2007-8 and the menace from the banks receded, we had new human threats from “involuntary migration”, “data fraud or theft” and “cyberattacks”. But the bigger trend is how the risks have been going increasingly green (as colored in the report), shifting to the “environmental”.

For 2020, all five of the top risks by likelihood, and four out of five for impact, relate to the environment. Beyond “extreme weather” and “natural disasters”, “climate action failure” which only moved into the chart in 2018, is now #1 for potential impact, overtaking “weapons of mass destruction” for the first time. There are also two new climate-linked entries to the top five risk impacts with “biodiversity loss” and “human-made environmental disasters”.

Without an explicit restatement of the question being asked from all the focus groups involved in ranking the risks, the scope of the Global Risks list has shifted.

From asking “What risks do you anticipate causing the biggest impacts next year?”, the question has expanded to “What are the long-term global risks that should be on next year’s agenda for action?” These are no longer just risks for the present, like extreme weather, but risks that relate to planetary stewardship.  

If “climate action failure” is the “risk”, what would “climate action success” look like? This implies an industrial and economic transformation that will require dramatic shifts in public attitudes.

In 2019 we saw some of these tectonic shifts in attitudes starting to emerge, and in particular as outlined by an articulate Swedish teenager and Time Magazine’s “Person of the Year” – Greta Thunberg. By 2030, one can speculate, attitudes will have hardened against: ‘driving a gas guzzler’, ‘eating meat’, ‘long distance flying’, ‘allowing a cat to roam outdoors’ and ‘having more than two children’. (Dining at an Argentinian steak restaurant will be like going to a speakeasy during Prohibition.) 

Anticipated shifts in attitudes could hold some big lessons for the insurance industry. Insurers will be expected to become active in driving the disinvestment in the carbon economy while rewarding sustainability measures that enrich biodiversity. They are going to have to compete on how their activities fit in with this green economy; all the while being expected to pick up the additional losses from flooding (enhanced by sea level rise and more intense rainfalls), or wildfires (propelled by drought and heatwaves).

The option to cancel a policy when the risk rises too high may not prove to be the long-promised “get of jail free card”, when politicians, as currently in California, demand that insurers should have already priced in the climate change risk and therefore have to sustain their former prices.  

One wonders how many of the industry titans and national leaders that attended Davos understand where the #1 entry on the annual risk report is going to lead them.   

Chief Research Officer, RMS

Robert Muir-Wood works to enhance approaches to natural catastrophe modeling, identify models for new areas of risk, and explore expanded applications for catastrophe modeling. Robert has more than 25 years of experience developing probabilistic catastrophe models. He was lead author for the 2007 IPCC Fourth Assessment Report and 2011 IPCC Special Report on Extremes, and is Chair of the OECD panel on the Financial Consequences of Large Scale Catastrophes.

He is the author of seven books, most recently: ‘The Cure for Catastrophe: How we can Stop Manufacturing Natural Disasters’. He has also written numerous research papers and articles in scientific and industry publications as well as frequent blogs. He holds a degree in natural sciences and a PhD both from Cambridge University and is a Visiting Professor at the Institute for Risk and Disaster Reduction at University College London.