The World Economic Forum's annual global survey of experts finds only 1 in 6 are optimistic and only 1 in 10 believe in our ability to implement a stable, sustainable global recovery.
Climate risks are back at the top of our most pressing global concerns as the world enters the third year of the pandemic, according to the World Economic Forum’s Global Risks Report 2022. While climate concerns dominate the top long-term risks, the top shorter-term global concerns include societal divides, livelihood crises and mental health deterioration.
Additionally, most experts believe a global economic recovery will be volatile and uneven over the next three years — this echoes sentiments from the most recent GlobeScan/Sustainability Institute by ERM report, in which 70 percent of sustainability experts expressed skepticism at our ability to avert major damage from climate change.
Now in its 17th edition, the Global Risks Report encourages leaders to think outside the quarterly reporting cycle and create policies that manage risks and shape the agenda for the coming years. It explores four areas of emerging risk: cybersecurity; competition in space; a disorderly climate transition; and migration pressures, each requiring global coordination for successful management.
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As the pandemic drags on into a third calendar year, the resulting, ongoing global economic disruptions will continue to chip away at our ability to rebound on many critical levels.
As WEF Managing Director Saadia Zahidi explains in the report’s preface:
“Widening disparities within and between countries will not only make it more difficult to control COVID-19 and its variants, but will also risk stalling — if not reversing — joint action against shared threats that the world cannot afford to overlook. Last year’s edition of the Global Risks Report warned of potential knock-on economic risks that are now clear and present dangers. Supply chain disruptions, inflation, debt, labor market gaps, protectionism and educational disparities are moving the world economy into choppy waters that both rapidly and slowly recovering countries alike will need to navigate to restore social cohesion, boost employment and thrive.
“These difficulties are impeding the visibility of emerging challenges — which include climate transition disorder, increased cyber vulnerabilities, greater barriers to international mobility, and crowding and competition in space. Restoring trust and fostering cooperation within and between countries will be crucial to addressing these challenges and preventing the world from drifting further apart.”
Insights for business
Businesses may be unprepared for transition risks such as rapid shifts in policies and regulations, the need to develop low-carbon technologies and changes in consumer behavior and investor preferences. These risks have the potential to destabilize the financial system, as in aggregate they can increase default rates and asset volatility.
Businesses perceived as lagging, or as complicit in slowing down climate action, could lose consumer and investor confidence and face additional state intervention and liability risk through judicial action. A disorderly transition could see more frequent and severe supply chain disruptions due to labor and product shortages, especially as sectors and companies switch operating models or simply go out of business. These disruptions present challenges to the resilience of business models across all industries.
Businesses of all sizes need to be incentivized to proactively factor in transition risks and move to circular economy models, while governments should be encouraged to take bold and immediate steps towards implementing robust legal frameworks that ensure a just transition.
Businesses can leverage opportunities in areas such as supply chains, codes of conduct within their industry and inclusion of a resilience dimension into workforce benefit offerings.
Peter Giger, Group Chief Risk Officer at Zurich Insurance Group, said: “The climate crisis remains the biggest long-term threat facing humanity. Failure to act on climate change could shrink global GDP by one-sixth and the commitments taken at COP26 are still not enough to achieve the 1.5°C goal. It is not too late for governments and businesses to act on the risks they face and to drive an innovative, determined and inclusive transition that protects economies and people.”
The report closes with reflections on year two of the COVID-19 pandemic — yielding fresh insights on national-level resilience, as well as practical advice for implementing resilience within organizations.