WEF warns one more systemic shock could be unmanageable

The window for action on the most serious global threats is “closing rapidly”, warns the World Economic Forum (WEF) in its Global Risks Report 2023, which ranks the cost of living crises as the top short-term risk but sees environmental issues dominate over a longer timeframe.

The WEF said that the biggest risks facing the world could reach a tipping point unless there is concerted and coordinated action between countries.

Publishing its Global Risks Report 2023, produced with Marsh McLennan and Zurich, the WEF calls on the world’s leaders to coordinate “urgent” climate action.

It said the report’s findings “paint a picture of the global risks landscape that is both new and eerily familiar” as the world confronts risks that had appeared to be receding. In particular, the pandemic and war in Ukraine have seen the return of inflation and energy and food security crises.

“In this already toxic mix of known and rising global risks, a new shock event, from a new military conflict to a new virus, could become unmanageable,” said Saadia Zahidi, managing director of the WEF.

Drawing on views of 1,200 global risk experts and policymakers, the cost of living crisis tops the ten biggest threats over the next two years in the WEF report. This risk is followed by natural disasters and extreme weather events in second place and geoeconomic confrontation in third.

But over the longer ten-year timeframe, environmental risks fill the top four slots. Failure to mitigate climate change comes top, followed by failure of climate change adaption, then natural disasters and biodiversity loss and ecosystem collapse in fourth place. The WEF said ecosystem collapse is set to be one of the most rapidly growing global risks over the next decade.

“Unless the world starts to cooperate more effectively on climate mitigation and climate adaptation, over the next ten years this will lead to continued global warming and ecological breakdown,” the WEF warns. “Dramatically accelerated collective action on the climate crisis is needed to limit the consequences of a warming world.”

John Scott, head of sustainability risk at Zurich Insurance, said the interplay between climate change impacts, biodiversity loss, food security and natural resource consumption is a “dangerous cocktail”.

“Without significant policy change or investments, this mix will accelerate ecosystem collapse, threaten food supplies, amplify the impacts of natural disasters and limit further climate mitigation progress,” Scott said.

The WEF has warned about deeply interconnected global risks for the past 17 years. This has now clearly come to pass, with conflict and geoeconomic tensions causing energy and food supply shortages and the cost of living crisis.

Carolina Klint, risk management leader in continental Europe at Marsh, said these risks will cause further disruption to global supply chains in 2023 and impact investment decisions.

The WEF said that tackling short-term crises will undermine long-term risks, and in particular the threat posed by climate change.

At the same time, its report warns that geopolitical rivalries could create “unprecedented levels” of societal distress, as investments in health, education and economic development disappear, as well as more conflict.

“The coming years will present tough trade-offs for governments facing competing concerns for society, the environment and security. Already, short-term geo-economic risks are putting net-zero commitments to the test and have exposed a gap between what is scientifically necessary and politically palatable,” the WEF says.

“Without a change in trajectory, vulnerable countries could reach a perpetual state of crisis where they are unable to invest in future growth, human development and green technologies,” it warns.