Cost of building resilience far less than inaction, say WEF experts

The cost of inaction far outweighs the cost of building resilience to risk, according to expert speakers at the launch of the World Economic Forum’s (WEF) Global Risks Report 2021, who urged companies and governments to take a holistic, rather than short-term, approach to risk management. The report warns that the world faces short-term societal and technological risks created by Covid-19 that will give way to economic pressures over the medium term and geopolitical problems in the long run. With climate change still the biggest existential threat, it says risk resilience is more important than ever to help the world bounce back from the pandemic and deal with a range of global threats. Experts speakers at the report’s launch told companies and governments that rather than creating inefficiencies and extra costs, resilience pays off financially in the longer term. Børge Brende, president of the WEF, said: “It is true that building resilience can have a short-term cost, but I think overall the cost of inaction far exceeds the cost of action. We have seen how unprepared we were for the pandemic. I think also on climate change the measures we are now taking, even if in the short term there may be a price to it, in the longer term the cost of not doing anything would be far higher.” Peter Giger, group chief risk officer at Zurich, said building resilience only seems inefficient and costly if you take a short-term view. “As a risk officer, I would suggest building resilience lowers the overall cost. We have been perfectly optimised for a sunny day and then rainfall came in. That is going to happen time and time again. Building resilience will actually lead to lower costs over time because it is always cheaper to build a dam than to pay for the flood. Always,” he said. Adding: “It is a very shortsighted perspective we have taken in many of the processes we have optimised to the nth degree. Only in a very short-term and narrow perspective under the assumption of perfect stability in the world are the costs lower. If you take a more holistic perspective, resilient processes may be more cost effective.” Mr Giger conceded that thinking about long-term risk goes against human nature in many ways, but added that good risk management will naturally build the resilience needed to mitigate such threats. “Humans are very ‘fight or flight’ focused. We are very good at immediate risks, but with these-slow burning fires we are not nearly as good. That is why we find it so hard as a society to deal with climate change,” he said. “The key in risk management is to prepare for the unexpected. All the risks we have in the report are kind of expected, but we need to leave room for the things we don’t have on the radar. There are much more infrequent things than a pandemic that are not necessarily worth worrying about specifically, but generally good risk management will create resilience to a broad range of potential outcomes,” he added. Carolina Klint, risk management leader in continental Europe at Marsh, said companies need to start thinking about resilience differently in order to meet the big risks. “Companies becoming more resilient is not more inefficient. We need to think about this differently. We definitely see companies wanting to build resilience and respond to the changing landscape that we see. We have to build in slack to be able to meet the challenges of tomorrow,” she said. Guillaume Barthe-Dejean, director, chairman’s office at SK Holdings, echoed the message from the other experts. “Instead of framing this as a cost, we need to think of it as an investment. At this point, I would like to bring in technology. It is very clear, to us at least, that technology and the development of 5G and AI, for example, can emerge as a formidable engine of growth that can also help us to improve our resilience going forwards,” he said.

Cost of building resilience far less than inaction, say WEF experts

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