Briefings

World Economic Forum: world is more vulnerable to global risks

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World Economic Forum: world is more vulnerable to global risks

Last week the World Economic Forum (WEF) held its annual meeting in Davos, Switzerland, providing an occasion for politicians and business leaders to discuss the current global economic and political situation.

Speeches by Blair et al may have grabbed the limelight this time around (at least in the absence of the celebrities of previous years), but perhaps more overlooked has been the WEF’s significant focus on global risks and our collective capacity to respond.

Global risks – global responses required

Back in 2004, the WEF founded the Global Risk Network in an attempt to bring together cross-sectoral responses to a new set of emerging global risks:

In an increasingly complex and interconnected global environment, risks can no longer be contained within geographical or system boundaries. No one company, industry or state can successfully understand and mitigate global risks.

For this year’s WEF annual meeting, the network’s Report on Global Risks highlights that the world is neither prepared nor adequately equipped to effectively deal with increasing global risks. Companies, governments and global governance structures all need to respond better.

Out of 23 global risks studied by the Global Risk Network, almost all have increased over the last year, although at different rates. At the same time, processes to detect and mitigate risks have not progressed accordingly, despite improvements in some areas such as collaboration on counterterrorism.

Dealing with Risk Interdependencies

When it comes to seeking to regulate global risks, the report puts a particularly strong emphasis on:

The interdependencies between global risks, the importance of taking an integrated risk management approach to major global challenges and the necessity of attempting to deal with root causes of global risks rather than reacting to the consequences.

Two innovative recommendations are put forward to meet these challenges:

  • Appointing Country Risk Officers. Inspired from existing risk managers in the private sector, they would endow governments with a hub for mitigating global risks across departments and to escape a silo-based approach.
  • Flexible ‘Coalitions of the willing’ of relevant governments and companies around specific risk issues. These would allow mitigation strategies to come about from dynamic interaction between business and governmental representatives, “allowing risk mitigation to be a process of gradually-expanding alliances rather than a proposition requiring permanent consensus.”

Greatest risk: Climate Change

Concerns about climate change have increased tremendously among political and business leaders. A poll of participants prior to the annual meeting of the WEF revealed that one in five, compared to less than one in ten a year ago, considered tackling climate change to be the biggest priority world leaders should concentrate on.

This was confirmed in a special brainstorm and discussion session of the WEF entitled ‘The Shifting Power Equation: Exploring the Implications’ where participants were asked to consider “which shift will have the most impact on the world in the coming years, and which shift is the global community least ready for?”.

The session summary reports that:

In a final vote, participants chose climate change (38%) and emerging markets (32.9%) as the issues that will have the greatest impact in the coming years, and climate change (55%) and inequality (12.2%) as two issues that the world is least ready for.

An indicator of 21st century success

The Report on Global Risks echoes this concern, highlighting the fact that:

Climate change is now seen as one of the defining challenges of the 21st century and as a global risk with impacts far beyond the environment.

Given the interconnected nature of global risks, successful action to mitigate global warming could also improve economies’ resilience to oil price instability by shifting the energy supply of developed countries to low-carbon sources. But equally, in the absence of successful action, climate instability is likely to trigger major civil and interstate wars within the next 50 years.

As a consequence, the report doesn’t shy away from stating the importance of climate change over the coming decades:

The way in which climate change is dealt with at the global level will be a leading indicator of the world’s capacity to manage globalisation in an equitable and sustainable way.

Progress – but how much?

Although it is somewhat reassuring for policy makers to see businesses turning to acknowledge the significance of the climate change risk, it is hard to assess to what extent any tangible advances are effectively coming out of the WEF in terms of impetus for international action. The announcement last week of the new US Climate Action Partnership between businesses and NGOs seems more like concrete progress on that front.

As always, the proof of the pudding is in the eating. We’ll be watching with interest to see whether actions on the top issues of climate change, global trade and globalisation really do flow from WEF members over the coming year, as was pledged in the closing session:

We are the epicentre of world engagement. It’s not just the results of the four days that flow out of here. The initiatives will continue so when we are back here in 2008 we can say something really did happen,” concluded E. Neville Isdell, Chairman and CEO, The Coca-Cola Company.

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