World must ‘wake up’ to existential threats says WEF as report lays out Covid-19 risks

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, warns the World Economic Forum’s (WEF) Global Risks Report 2021. 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 issues.

Environmental concerns once again top the Global Risks Report’s list when it comes to likelihood and impact during the next decade, but this year’s edition reflects the fact that we are living through the worst pandemic in more than a century.

As a result, the WEF asked respondents to its Global Risk Perception Survey of business, government, civil society and thought leaders that informs the report, to rate risks over several timeframes.

The survey found that the pandemic is expected to increase disparities and social fragmentation in the near-term horizon of less than two years. Infectious disease is the number one clear and present danger, followed by a livelihood crisis, extreme weather events, cybersecurity failure and digital equality.

“When it comes to the first couple of years… it is not just about the health crisis but also the unemployment crisis that has been induced by the recession. It is also the digital divide, and cybersecurity failure is a concern over the next two years,” said the WEF’s managing director Saadia Zahidi, at a press conference to launch the report.

In the next three to five years, experts fear risks that threaten the economy as the world deals with the fallout of Covid-19. In this medium term, survey respondents believe the world will be threatened by knock-on risks – such as asset bubble bursts, IT infrastructure breakdown, price instability, commodity shocks and debt crises – which may take several years to materialise.

In the next five to ten years, experts think geopolitical stability will weaken and are concerned about state collapse and weapons of mass destruction. It is during this timeframe that climate change issues such as biodiversity loss and natural resource crises come to the fore too.

Beyond the headline risk list findings, the Global Risks Report 2021 says the Covid-19 pandemic has not only claimed millions of lives, but also widened longstanding health, economic and digital disparities.

Billions of caregivers, workers and students – especially minorities who were disadvantaged before the pandemic – are now at risk of missing pathways to the new and fairer societies that the recovery could unlock, says the WEF.

The report warns that these developments may further impede the global cooperation needed to address long-term challenges such as environmental degradation. It adds that the gap between the ‘haves’ and the ‘have-nots’ when it comes to technology access and digital skills also risks widening and challenging social cohesion.

“This will particularly affect young people worldwide, as this group faces its second global crisis in a generation and could miss out altogether on opportunities in the next decade,” says the WEF.

The latest Global Risk Report goes onto warn that financial, digital and reputational pressures caused by Covid-19 also threaten to leave behind many companies and their workforces.

While these potential disparities could cause societal fragmentation for states, an increasingly tense and fragile geopolitical outlook will also hinder the global recovery from Covid-19 if mid-sized powers lack a seat at the global table, it adds.

And beyond all these risks, Ms Zahidi said the WEF survey makes “absolutely clear that if you look at the next ten years, the most problematic risk that the world faces is still climate change”.

“There is no vaccine for this – only the actions we can take today to build more sustainable economies,” she added.

Environmental risks make up four of the top five by likelihood in the next decade and four of the top six by impact in the new Global Risks Report.

Børge Brende, president of the WEF, told journalists that in order to rise to all of these challenges, risk resilience is more important now than at any time. He urged the world to “wake up” to global risks.

Governments and business need to pay “much more attention to risk blindspots” and other key threats, he added.

Mr Brende said risks such as pandemics and climate change are not confined by borders and therefore demand a global response. But he conceded that this won’t be easy given the current “polarised” geopolitical world.

The WEF’s president added that inequality and social fragmentation is an immediate risk facing the world that must be addressed and taken seriously as it deals with the economic aftershocks of Covid-19. He urged the world to ensure that future growth is more inclusive and sustainable. “There is a bigger risk of doing too little than too much,” said Mr Brende.

Carolina Klint, risk management leader in continental Europe at Marsh, told Commercial Risk that the WEF report is a call to action.

“The pandemic has accelerated trends that have been around for a long time and it is clear that improved collaboration and coordination is the only way to improve the collective resilience that is needed to respond to these seismic shocks,” she said.

Ms Klint said the pandemic has shown that low-probability, high-impact events do happen, and therefore changed the way business thinks about risk while increasing awareness at board level.

She said many business are grappling with how to survive and adapt to a rapidly changing risk landscape driven by societal, political and technological forces. Now is the time to build resilience, Ms Klint added.

“We see many businesses now grappling with how to survive and build resilience, not only in relation to the pandemic but also having to cope with an increased number of cyberattacks, catastrophic climate events and social unrest,” she said.

Adding: “Companies now need to take a step back and plan for the unexpected against this background of a constantly changing risk landscape. They must make the needed shift in strategy and strengthen organisational resilience, and empower their leaders to make quick decisions with confidence. There are opportunities to invest in clean, smart and inclusive growth, but it is time for action. The stage is set for a more resilient, sustainable and inclusive future.”

Peter Giger, group chief risk officer at Zurich, agreed that risk managers must build resilience and prepare their organisations for the unexpected.

“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. That is the key and the value of the report. It’s the process not the prediction,” he said.

Ms Klint also urged risk managers to use the WEF’s Global Risks Report as a reference point on the road to resilience.

“If you think about the Global Risks Report in practical application, businesses should use it as a reference point to look at risks and how resilient they are. You can use the report to analyse scenarios that might be particularly disruptive to you. Then you must constantly review the risk management and mitigation, especially for the more fast-moving risks. Businesses should also look at these risks through the lens of whether they can align their strategy with change, because there might be opportunities,” she said.