BrazilClimate change is now the globe’s top extreme risk
After years of growing warnings to business and society, climate change has now become the globe’s most important extreme risk. A new study of the most pressing extreme risks to consider by executives and investors is topped by climate change, up from seventh position ten years ago.
The study, conducted by professional services firm Willis Towers Watson, assessed the likelihood and impact of what the firm describes as ‘extreme risks’. These are risks that are not part of day to day operations, but risks that when they unfold could have a high or even devastating impact on economic growth and company performance.
Ten years ago, the list was not surprisingly dominated by topics linked to the global financial crisis. The top five extreme risks keeping executives and investors awake at night were economic depression, hyperinflation, excessive leverage, a currency crisis and a continued/new banking crisis.
Fast forward to 2019 and the picture is is radically different. In the years since, the global economy has rebounded, and in its slipstream local economies – with the US at the forefront – and asset markets have been enjoying record times. This has radically altered the make-up of Willis Towers Watson’s extreme risks rankings – financial risks have been pushed down, and filling their shoes are a range of (many new) non-financial extreme risks.
Global temperature change has climbed to the top spot, on the back of its growing likelihood, but more importantly its impact given today’s knowledge of causes and effects. In one scenario painted by the researchers, climate change could make the entire planet “far less habitable”, triggering a multitude of other extreme impacts including famine, migration and warfare.
Political tensions between countries such as the US and China, the West and Iran, and Europe and Brexit, explain why global trade ranks second. Similarly, the rapid rise of cyber threats as the world has become ever more connected has seen cyber warfare jump into the third position from outside the top 20. “The risk of the internet being weaponised has increased significantly,” said Tim Hodgson from Willis Towers Watson subsidiary the Thinking Ahead Group, who was one of the report authors.
Other new extreme risks that have seen rapid a ascendance to the top tiers include biodiversity collapse (rapid reduction in nature, flora and fauna, including the extinction of species) and abandonment of traditional money (use of alternative currencies such as digital currencies).
According to calculations from the authors, extreme risks have over the past years across the board become “less extreme” – meaning (much) more likely than previously thought. “To navigate through this complex world, we suggest investors need to be open-minded, avoid concentrated risks, be sensitive to early warning signs, constantly adapt and always prepare for the worst,” concluded Hodgson.
