Environmental and cyber risks rise to prominence in WEF’s 2018 risk report

Environmental and cyber risks are two of the most significant threats facing businesses and economies, according to the World Economic Forum’s (WEF) Global Risk Report 2018. The report, published today ahead of the World Economic meeting in Davos next week, highlights the growing importance of environmental and cyber risks, underlining the systemic natures of these threats. The WEF Global Risks Report is based on the perspectives of risk experts and decision makers. It is used to drive discussions at the annual Davos meeting of global leaders, business leaders, non-governmental organisations and others. This year’s report notes that the prospect of strong economic growth provides an opportunity for governments and decision makers to work together to address some of the risk challenges faced. But it cautions that in many areas, society is struggling to keep up with the accelerating pace of change. WEF’s annual Global Risks Perception Survey, on which the report is based, asked nearly 1,000 respondents for their views about the trajectory of risks in 2018. It revealed that 59% of experts believe risks will intensify in 2018, compared with just 7% who believe they will decrease in 2018, noted Margareta Drzeniek Hanouz, head of economic progress at the WEF. Four key topics emerged from the survey as key issues for 2018, explained Ms Drzeniek Hanouz. Those are the environment, cyber, economics and geopolitics. Experts were asked to prioritise 30 global risks in terms of likelihood and impact. All five environmental risks – extreme weather, biodiversity loss and ecosystem collapse, major natural disasters, man-made environmental disasters and failure of climate change mitigation and adaptation – ranked highly on both metrics, with extreme weather events seen as the most prominent risk. Last year was one of the three hottest on record, noted Ms Drzeniek Hanouz, with a number of extreme, catastrophic weather events. Cyber threats are also growing in importance. Large-scale cyberattacks are now ranked the third most critical risk in terms of likelihood, and rising cyber-dependency ranked the second most significant driver shaping the global risk landscape during the next decade, by the WEF. Cyberattacks have become more systemic, with a shift from economically-motivated attacks on businesses to more government-sponsored attacks, Ms Drzeniek Hanouz noted. Insurance and risk experts urge a collective response to environmental and cyber threats. The environment is a critical risk area where governments and businesses have both a moral imperative and economic motivation to act, said Alison Martin, group chief risk officer at Zurich Insurance Group. There is often a “too little, too late” response by both governments and businesses to risks such as climate change, she noted. But there is still a chance for organisations to work together, and with collective will, to address this challenge, she added. Extreme weather events are a huge risk concern, Ms Martin continued. As well as the devastating hurricanes in the US and Caribbean last year, there also were huge storm losses in Ireland and other European countries, she noted. Furthermore, 2017 was the hottest El Nino year on record and was marked by deadly wildfires in countries such as Chile, the US and Portugal. One in ten deaths globally are now the result of indoor and outdoor pollution, Ms Martin said. There is an opportunity, and a business case, for companies to address these risks, she added. The insurance industry has a part to play in bringing its risk assessment expertise to bear in this area, the expert continued. The scale and sophistication of cyberattacks is likely to grow in the coming years, said John Drzik, president of global risk and digital at Marsh. This is in part fuelled by geopolitical tensions, he noted. At the same time, cyber exposure within corporates is increasing, Mr Drzik said. The number of interconnected devices, for example, is projected to exceed 20 billion by 2020, he added. “Both businesses and governments need to think about increasing investment in cyber risk management,” said Mr Drzik, noting that there is significant under-resourcing of efforts to mitigate this risk. The size and systemic nature of cyber risk should not be underestimated, he stressed. A cyberattack that takes down a major cloud provider could cost as much as Hurricane Sandy or Katrina, added Mr Drzik. The infrastructure in place to protect against and, importantly, recover from cyberattacks, significantly lags that in place to cope with major weather events, he noted. Most businesses tend to focus on preventing cyberattacks “and not enough on response”, the expert said, adding that both climate and cyber risk are “boundaryless”. The cyber insurance market is growing, in terms of premium volume, limits, geographic scope and breadth of coverage, but it still small in comparison with the risk, continued Mr Drzik. He urged businesses and governmental organisations to take into account the interconnectivity of cyber risk and work to find ways to improve resilience.

Environmental and cyber risks rise to prominence in WEF’s 2018 risk report

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