COMMENT: Long-term and low probability risks

It may be contrary to human nature, the world must wake up to the need to address long-term and low probability risks. This was among the headline messages in the World Economic Forum’s annual Global Risks Report, published ahead of the organisation’s 51st annual Davos gatherings.

“It is always cheaper to build a dam than to pay for a flood,” Peter Giger, group chief risk officer, Zurich Insurance Group, told press at a virtual conference held just as this magazine goes to print.

In 2020, the world saw the catastrophic effects of ignoring long-term risks such as pandemics – something the WEF has highlighted in five of its last six Global Risks Reports. The ongoing COVID-19 pandemic is increasing disparities and social fragmentation, and in the next three to five years will threaten the economy, the organisation warned; in the next five to ten years, geopolitical stability could be weakened as a result.

The COVID-19 crisis has accelerated a lot of trends that were already underway, Carolina Klint, risk management leader for continental Europe at Marsh, explained; and has led to greater visibility of problems and fractures already in place.

Despite this down tone, there were some crumbs of comfort from the WEF’s panel of risk experts, who see an unprecedented opportunity to build resilience and stability into recovery. “We have a rosier outlook than in 2020, but it is up to us how we shape the quality of that future growth,” Klint insisted.

The report also reflects on the responses to COVID-19, drawing lessons designed to bolster global resilience. These include formulating analytical frameworks, fostering risk champions, building trust through clear and consistent communication, and creating new forms of partnership.

The COVID-19 pandemic has not only claimed millions of lives, but it also widened long-standing health, economic and digital disparities, with billions of caregivers, workers and students now at risk of missing pathways to the new and fairer societies that the recovery could unlock. According to the research, these developments may further impede the global cooperation needed to address long-term challenges such as environmental degradation.

When it comes to technology access and digital skills, the gap between the ‘haves’ and the ‘have nots’ risks widening and subsequently challenging social cohesion.

Financial, digital and reputational pressures resulting from COVID-19 also threaten to leave behind many companies and their workforces in the markets of the future. While these potential disparities could cause societal fragmentation for states, an increasingly tense and fragile geopolitical outlook will also hinder the global recovery if mid-sized powers have no seat at the global table.

Looking ahead across the next decade, environmental risks are once again a key concern in terms of impact and likelihood. The aforementioned societal fractures, uncertainty and anxiety will compound the coordination needed to address the planet’s continued degradation, the report warns.

Saadia Zahidi, managing director at the WEF said that while it may be difficult for governments and businesses to address such long-term risks, ignoring them doesn’t make them less likely to happen.

“As governments, businesses and societies begin to emerge from the pandemic, they must now urgently shape new economic and social systems that improve our collective resilience and capacity to respond to shocks while reducing inequality, improving health and protecting the planet,” she said.

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