Kathy Gibson reports – Multiple crises are facing people and businesses as we go into 2023, topped by energy, food and the cost of living.
These are the top risks for 2023 identified by the World Economic Forum’s latest Global Risks Report, with the cost of living expected to remain a top risk for at least the next two years; and risks associated with climate change top of mind over the next decade.
“Today, leaders are facing multiple crises, which plays into pessimism, with an expectation of increasing crises compounding one another,” says Saadia Zahidi, MD of the World Economic Forum. “Even a decade out, the expectation is that things will still be negative.”
Disappointingly, many of the risks identified today are issues are a recurrence of those that the world was on the way to addressing in the form of the Sustainably Development Goals (SDGs), Zahidi says. And they are being compounded by new geopolitical and economic risks layered on top of climate issues.
“This poly-crisis environment is very challenging for governments and businesses.”
There is optimism to be found in the way the world reacted to the Covid-19 crisis, which helped to build resilience, she adds.
For the past 17 years the World Economic Forum’s Global Risks Report has warned about deeply interconnected global risks. Conflict and geo-economic tensions have triggered a series of deeply interconnected global risks, according to the World Economic Forum’s Global Risks Report 2023.
These include energy and food supply crunches, which are likely to persist for the next two years, and strong increases in the cost of living and debt servicing. At the same time, these crises risk undermining efforts to tackle longer-term risks, notably those related to climate change, biodiversity and investment in human capital.
The Global Risks Report 2023 argues that the window for action on the most serious long-term threats is closing rapidly and concerted, collective action is needed before risks reach a tipping point.
The report, produced in partnership with Marsh McLennan and Zurich Insurance Group, draws on the views of over 1 200 global risk experts, policy-makers and industry leaders. Across three timeframes, it paints a picture of the global risks landscape that is both new and eerily familiar, as the world faces many pre-existing risks that previously appeared to be receding.
At present, the global pandemic and war in Europe have brought energy, inflation, food and security crises back to the fore. These create follow-on risks that will dominate the next two years: the risk of recession; growing debt distress; a continued cost of living crisis; polarized societies enabled by disinformation and misinformation; a hiatus on rapid climate action; and zero-sum geo-economic warfare.
Unless the world starts to cooperate more effectively on climate mitigation and climate adaptation, over the next 10 years this will lead to continued global warming and ecological breakdown. Failure to mitigate and adapt to climate change, natural disasters, biodiversity loss and environmental degradation represent five of the top 10 risks – with biodiversity loss seen as one of the most rapidly deteriorating global risks over the next decade.
In parallel, crises-driven leadership and geopolitical rivalries risk creating societal distress at an unprecedented level, as investments in health, education and economic development disappear, further eroding social cohesion. Finally, rising rivalries risk not only growing geo-economic weaponisation but also remilitarisation, especially through new technologies and rogue actors.
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.
Dramatically accelerated collective action on the climate crisis is needed to limit the consequences of a warming world.
Meanwhile, security considerations and increasing military expenditure may leave less fiscal headroom to cushion the impacts of an elongated cost of living crisis. 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.
The report calls on leaders to act collectively and decisively, balancing short- and long-term views. In addition to urgent and coordinated climate action, the report recommends joint efforts between countries as well as public-private cooperation to strengthen financial stability, technology governance, economic development and investment in research, science, education and health.
“The short-term risk landscape is dominated by energy, food, debt and disasters. Those that are already the most vulnerable are suffering – and in the face of multiple crises, those who qualify as vulnerable are rapidly expanding, in rich and poor countries alike. 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. Climate and human development therefore must be at the core of concerns of global leaders to boost resilience against future shocks,” says Zahidi.
John Scott, head of sustainability risk at Zurich Insurance Group, comments: “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. If we speed up action, there is still an opportunity by the end of the decade to achieve a 1,5ᵒC degree trajectory and address the nature emergency. Recent progress in the deployment of renewable energy technologies and electric vehicles gives us good reasons to be optimistic.”
He adds that, since the Rio Earth Summit 30 years ago and despite intense climate diplomacy and activism, the world is not doing enough about climat change.
“It feels like we are really challenged in meeting climate goals. Despite climate change being one of the highest risk, mitigation is ineffective – and it’s unlikely to change in the near future.
“We are living in world where scientific and political expediency don’t match; and COP27 failed to agree on phasing out fossil fuels.”
We have already seen a 1,2 degree increase since pre-industrial times, Scott points out. “The stakes are extremely high, and there could be dramatic consequences over the next 10 years in terms of food, food supply and livelihoods – especially in vulnerable countries.”
Despite some positives in terms of a global focus on clean and efficient energy, he says climate change is still an existential risk for the planet. “A net-zero future is still in reach, but the window is closing rapidly. The time for action is now.”
Carolina Kint, risk management leader: continental Europe at Marsh, says: “2023 is set to be marked by increased risks related to food, energy, raw materials and cyber security, causing further disruption to global supply chains and impacting investment decisions.
” At a time when countries and organisations should be stepping up resilience efforts, economic headwinds will constrain their ability to do so. Faced with the most difficult geo-economic conditions in a generation, companies should focus not just on navigating near-term concerns but also on developing strategies that will position them well for longer-term risks and structural change.”
She explains that cost of living risks impact businesses. “Risks are surpisingly interconnected and impact one another.”
And the list of concerns for business is growing longer, says Kint. “Food insecurity has increased and no country is immune to social erosion caused by lack of access to necessities.
“Businesses need to be aware of increased risks because it creates insecurities in supply chains. Indeed, we have seen how companies are turning from a just in time approach to just in case strategies – bringing production closer to home; near storing and stockpiling. There is also a trend towards companies taking control of the whole supply chain.”
Companies are also spending to build resilience and secure energy, she adds.