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Global Risks Report zooms into the future

12 February 2020 Mashoto Lekgau

The recently released 2020 Global Risk Report highlights climate related risks as the top threats to the global economy in the long term. As the world turns its focus toward green living and practices, it seems as if businesses are also being incentivised to take care of the planet.

The annual report states that new developments are emerging, where businesses can invest in the preservation of the ecosystem in return for a reduction in insurance premiums.

Contemplating exposure and calculating risk

We just started a new decade full of ambitions and prospects - as well as its own hurdles and threats. However, it’s always best to measure and control potential from both side of the coin, not only as an implement of planning but also as an instrument of managing risk.

The World Economic Forum (WEF) recently published the 15th edition of The Global Risks Report, with support from Marsh & McLennan and Zurich Insurance Group. The comprehensive document paints a picture of the potential risks and pressures that may have an impact on “global prosperity” this year and over the next decade of business. The report is a melting pot of feedback and input from nearly 800 influential decision-makers and industry experts across the globe. For the sake of order, they ranked their concerns in terms of likelihood and impact.

The glass ball

The Global Risks Report is, ideally, a reference point for businesses to identify external threats and scrutinise how resilient their companies would be to them should they present themselves at their doorstep.

Various features of international and domestic communities, including business, sociopolitical landscape, security, healthcare and insurance among others, are placed under the microscope by experts. The results are then offered as a litmus paper for the general global community, including business, to reevaluate their strengths against methods that could cover their weaknesses.

The financial benefits of being at peace with ‘Mother Nature’

The 2020 Global Risks Report’s top long-term risks comprises climate related threats, while economic confrontations and political schisms recorded as significant short-term risks in the year 2020.

Environmental risks have gained prominence in the reports over the last decade. In this year’s report in particular, they were regarded as the top risk in the High Impact and High Likelihood zone of the Risk Matrix. 

The world is raving about “green initiatives” and the need for business to consider the wellbeing of planet in their efforts. Touching of the hot button issue of the climate related threats, the report states that “there is also a business rationale for preserving or restoring natural ecosystems.”

“On average, the costs of restoration are outweighed tenfold by its benefits to communities. Restoring coastal mangroves, for example, can protect land from storm surges and coastal erosion, develop fisheries and support ecotourism. Investing in the restoration of wetlands, mangroves and coral reefs could reduce insurance costs for businesses in coastal areas vulnerable to flooding. Likewise, financing ecological forestry practices could reduce insurance costs for businesses, such as power and water utilities, that are exposed to wildfire risks” it continues.

According to the Organisation for Economic Co-operation and Development (OECD), “restoring 46% of the world’s degraded forests could provide up to US$30 in benefits for every dollar spent, boosting local employment and increasing community awareness of biodiversity’s importance.

A critical challenge for the biodiversity agenda will be finding investment models that mobilize private finance to capture a share of this opportunity. New approaches are emerging, such as resilience-financing structures through which businesses can invest in the restoration of ecosystems in return for a reduction in insurance premiums or risk-financing costs.”

Looking at the whole picture with a sober eye

Chairman of Marsh & McLennan Insights, John Drzik, pointed out that this year’s report highlights a growing trend in the prominence of environmental threats in the annual study, the threat of geopolitical unrest and the general need to address some of the thorns in the global economy’s flesh. 

Geopolitical instability and conflicts derail the potential of nations, and people in general, who have individual benefits in mutual approaches – everyone benefits in a more inclusively structured living and working environment. 

Rise of the Machines

A major risk that can be argued as one that affects every economy directly in the world is the risk of technology as a threat - with a consideration of vulnerabilities imposed by cyber threats and data fraud and theft, among others. Taking advances like the Fourth industrial revolution I mind, the growth in prominence of the risk isn’t a total surprise.

Drizk pointed out “Technology is amplifying both domestic and international conflict. For example, it’s facilitating interstate conflicts in the form of state sponsored cyber-attacks on critical infrastructure and also (sic) leading to growing strategic competitions and conflict around sensitive technologies related to security.”

“You see new digital technologies are spawning the expansion of fake news online and extremist content, which is serving to erode trust within countries and also fuel unrest” he concluded.

To access the full 2020 Global Risks Report, click here.

Writer’s Thoughts:
As mentioned above, the annual Global Risks Report is somewhat of a barometer for businesses and economies to gauge their current state and stability against possible threats. It seems like the more the world develops, the more it become vulnerable to new threats - with humans being responsible for most of them. The need for greener practices is highlighted in how businesses are incentivized to take care of ecosystems through lower insurance premiums. At least, something is being done about it. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts mashoto@fanews.co.za.

 

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