In January, the World Economic Forum (WEF) released its annual Global Risks Report. The 2021 report is the 16th iteration of the WEF’s risk reporting, which has long taken a holistic approach to isolating and mitigating risks – across both public and private sectors, and in every part of the globe.

This year’s report is, unsurprisingly, dominated by COVID-19. The global perception of risk from infectious disease – and the risks associated with the economic and social impact of these same diseases – is at a higher level than ever before.

However, the WEF has taken the publishing of the report as an opportunity to reiterate that both public and private institutions alike should take a long-term view to managing risks.

The Big Picture

It will come as no surprise to learn that the COVID-19 pandemic was by far the biggest concern for the respondents to the WEF’s annual survey. At the most superficial level, the report indicates that there has been a significant increase in the perception that infectious diseases pose a threat to business, culture and society.

However, the report also indicates that many respondents have a more thorough understanding of the deeper effects of the pandemic than might be expected. Specifically, many respondents were concerned that, although the short-term impact of the pandemic has been largely economic, in the longer term this economic damage threatens to undermine and weaken geopolitical stability.

In addition, there is a widespread appreciation that the impact of the virus cannot be simplified merely to lost revenue. The report indicates that many citizens in the West are concerned about civil liberties after the pandemic, and specifically how measures designed to stop the spread of COVID will be used to ultimately reduce privacy.

The 2021 report captures the worry, felt by many in both the public and private sector, that inequality will lead to a world in which the social benefits of digital technologies are also unequal, and in which this exacerbates existing social issues.

An example is the Contact Tracing app developed in Australia, which is designed to track every person who tests positive for the virus. And while Australian Government Services Minister Stuart Robert claims that the app will not trace anyone’s physical location, privacy experts remain very wary.

Similarly, many are conscious that COVID has exacerbated longer-term issues such as global inequality, and will make these harder to deal with in the decades to come.

Changing Perceptions

The clarity with which the 2021 Global Risks report is able to capture the perception of risk is due, in part, to a novel methodological approach. The 2021 report asked respondents to indicate when they thought that particular risks would pose a serious threat to people around the world.

What emerges from their responses is a complex and multi-faceted perception of risk:

In the short term, concern about economic and financial risks dominate. There is understandable concern about the rapid emergence of infectious diseases, and the fact that further such emergencies could lead to cyclical employment crises.

In the medium term, the impact of future pandemics is articulated differently – as a risk that results in the exacerbation of inequality and widespread youth disillusionment that could threaten the integrity of democratic processes.

Ultimately, respondents believed, these issues could lead to asset bubbles, price instabilities, and recurring debt crises as governments are forced to borrow and then tax on a medium-term cycle.

In the longer term, more familiar risks dominate. Weapons of mass destruction, the collapse of governments, and the ever-impending advent of “peak oil” have appeared on every iteration of the WEF’s reports for the past decade, and with good reason.

They also hang over the findings of the recent report, with respondents still believing them to be the largest long-term threats we now face.

Technology and the Environment

Beyond the impact of the pandemic on the global perception of risk, a number of other trends are highly visible in the 2021 report. These trends have been growing in importance for some years, but in 2021 have emerged as perhaps the most important sources of risk in the next decade.

The first of these is the impact of technology, or more specifically the way in which this impact has been unequally felt around the world. The 2021 report captures the worry, felt by many in both the public and private sector, that inequality will lead to a world in which the social benefits of digital technologies are also unequal, and in which this exacerbates existing social issues.

Even where technologies are widely available, the perception of risk remains. Perhaps because of the increase in high-profile cyber attacks that have occurred in the last year, the WEF report also points to growing security concerns with the use of mobile devices, with the number of cyberattacks directed against mobile devices rising by 42% when compared to just before the pandemic hit.

This has been felt acutely by many CEOs in the manufacturing industries, who recognize both potential and the potential dangers of these technologies.

Lee Hyung-hee, President of the Social Value Committee, SK Group, explicitly highlighted this in his commentary on the report. “If the continued deployment of 5G and AI is to emerge as an engine of growth,” he said, “we must urgently bridge digital divides and address ethical risks.”

Secondly, and completely understandably, there is the environment. Look back at the WEF’s Global Risks Reports for the last decade, and you’ll see a gradual but inexorable increase in the perception that climate change now constitutes the single largest source of risk for both advanced and developing economies.

In fact, when it comes to the environment, this year’s report points to something of a “perfect storm”. The impact of climate change is being felt more deeply, and at a wider scale, than ever before, but the pandemic might have made addressing this even more difficult.

As the WEF themselves point out, “societal fractures, uncertainty and anxiety will make it more difficult to achieve the coordination needed to address the planet’s continued degradation.”

Mitigation and Management

At the most fundamental level, the value of the WEF report remains similar to what it has always been – it allows businesses to take a holistic view of the risks they face, and to plan intelligently for their mitigation.

As such, the value of the report for businesses can be seen – perhaps strangely – as the inverse proportion to which it is surprising. Put more simply, if nothing in the full report surprises you, it’s likely that your risk mitigation strategies are working.

Source: Risk & Insurance