Despite promising headline global growth, the world's economies and societies remain vulnerable amid proliferating indications of uncertainty, instability and fragility, the World Economic Forum says in its latest Global Risks Report.
While a global economic recovery is under way, the potential for shocks that can cascade through an interconnected world is as great as ever, the World Economic Forum (WEF) says in its latest Global Risks Report, released on 17 January. Organisational leaders cannot squander the breathing space afforded by encouraging headline global growth to address "the proliferating signs of uncertainty, instability and fragility" around the world, the WEF says.
Each year since 2006, the Swiss-based not-for-profit has released the risks report to encourage collaboration between governments, companies and NGOs in developing mitigation strategies. It is based on a survey of nearly 1,000 experts and decision-makers across government, academia, non-governmental and international organisations, including members of the Australian Institute of Company Directors, which is a member of the WEF.
The last year has seen an increase in risk according to a majority (59%) of the experts surveyed. The WEF divides global risks into two categories. "Humanity has become remarkably adept at understanding how to mitigate countless conventional risks that can be relatively easily isolated and managed with standard risk management approaches," the report states. But the risks that come about from complex systems are more of a challenge. "[F]eedback loops, tipping points and opaque cause-and-effect relationships" in such systems make intervention difficult when problems arise.
Top 5 global risks for 2018 in terms of likelihood
1. Extreme weather events
A cluster of interconnected environment-related risks have consistently featured high in the risk report for the last eight years. As was the case in the 2017 Report, extreme weather events were again the top global risk in terms of likelihood.
Last year's three high-impact Atlantic storms – Hurricanes Harvey, Irma and Maria – continued a trend towards increasingly costly weather events over the last decade. The last twelve months have also seen numerous instances of extreme temperatures with temperatures 1.1°C above pre-industrial levels for the first nine months of the year. The rising temperatures and more frequent heatwaves will likely disrupt agricultural systems that are already strained, the report states.
2. Natural disasters
The report separates out natural disasters, e.g. earthquakes, tsunamis and volcanic eruptions, from extreme weather events like storms and extreme temperatures. The WEF highlights the particularly devastating impact that extreme rainfall can have. Of the ten natural disasters that caused the most deaths in 2017, eight involved floods or landslides, the report states. Natural disasters also threaten major property, infrastructure and environmental damage, according to the report.
3. Cyberattacks
As cyberattackers are increasingly targeting critical infrastructure and strategic industrial sectors, fears are rising that a cyberattack, in a worst-case scenario, could bring down systems that keep societies functioning. As well as a step change in their their potential gravity, cyberattacks are also increasing in sheer number. Cyber breaches recorded by businesses in the US almost doubled from 2012 to 2017, while global Distributed denial of service attacks using 100 gigabits per second jumped in frequency by 140% in 2016. The report cites a 2017 Accenture study of 254 companies across seven countries that put the annual cost of responding to cyberattacks at £11.7 million per company, a year-on-year increase of 27.4%.
4. Data fraud and theft
The acceleration of the use of cloud services has increased people's vulnerability to large-scale data fraud and theft. In 2016, companies revealed breaches of more than four billion data records, more than the combined total for the previous two years, the WEF states. Methods for stealing data are also becoming more readily accessible to criminals. Between 2010 and 2012, law enforcement had some success in choking off "dark net" markets for malware goods and services but they have seen a resurgence in recent years. In 2016, 357 million new malware variants were released and "banking trojans" that steal bank account logins were being sold for $500, according to the report.
5. Failure of climate-change mitigation and adaptation
The WEF offers a stern admonition to global leaders on climate change. "There is no scope for complacency about the sufficiency of global efforts to deal with climate change," the report warns. A rise in global carbon dioxide emissions in 2017 for the first time in four years has sparked fears that efforts to curb climate change have stalled. The spike was caused in part by heatwaves in China increasing energy consumption, while drought in the north of the country also led to a switch from hydro to coal-fired power generation. Diminished capacity of the oceans and tropical forests to absorb carbon dioxide may increase the pressure on mitigation efforts in coming years, according to the report.
As well as concerns about the effectiveness of mitigation, the WEF also draws attention to the social ructions that could be caused by the transition to low-carbon economies. "Dramatic changes in the way energy is produced are likely to trigger large-scale labour-market disruption. Structural economic changes in affected countries and regions could also stoke societal and geopolitical risks," the WEF cautions.
The full report is available here.
The AICD regularly runs courses and events for directors, aspiring directors and executives, covering governance and business best practice. Click here to see our upcoming courses in Western Australia.
