Cost-of-living crisis and climate change are top business risks

19 January 2023 3 min. read

The current economic crisis and the sharply rising cost of living around the world represent the greatest risk for companies worldwide in 2023, according to research unveiled at the World Economic Forum. Further ahead, however, the impact of climate change looms.

Since its foundation in 1971, the World Economic Forum’s (WEF) Davos conference has become a major fixture in the economic and political calendar. The WEF is an international non-governmental lobbying organisation, based in Switzerland, and its January get-together sees business and world leaders flock from all corners of the globe to discuss solutions to an annual theme.

This year’s theme, ‘Cooperation in a Fragmented World’, comes at a time when Russia’s invasion of Ukraine has seen conversations on nuclear war return to the mainstream.

Global risk ranked by severity

However, the latest edition of the ‘Global Risks Report’ by Marsh McLennan (the parent of Mercer, Marsh and Oliver Wyman) and Zurich Insurance Group suggests that most business leaders are more concerned by domestic matters at present.

The analysts surveyed more than 1,200 policymakers and risk experts, and found that in the short-term, at least, the problem atop of the worry list is the rising cost of living. This connects to another of the top short-term fears – that social cohesion is being eroded, and society is becoming more and more polarised.

Though, considering the key architects of neoliberalism – and the economic policies that have led to this point, have long made Davos a second home – it is unclear exactly what WEF attendants would suggest as a remedy.

Relative severity of risks over a 2 and 10-year period

Looking to the future, meanwhile, policymakers say they are most concerned by the “failure to mitigate climate change”. According to the researchers, due to the war in Ukraine, less money is available to stop global warming. If action is not taken quickly, it could have irreversible consequences, the report warns.

“We need to take action,” commented Marieke van der Werf, ESG advisory leader at Marsh in the Netherlands. “Businesses can no longer ignore the consequences of climate change. There is no need for short-term solutions, but for structural changes. A good  ESG strategy is indispensable for the world of tomorrow.”

To this end, the report draws an alarming conclusion; the world is in a so-called ‘polycrisis’, meaning that there are different types of crises running simultaneously or on the horizon. This is demonstrated by as many as five of leaders’ top six risks relating to climate change: failure to mitigate climate change, failure to adapt to climate change, natural disasters and extreme weather, loss of biodiversity and collapse of ecosystems, and a crisis in natural resources.

Global risks landscape- an interconnections map

In this context, leaders need to act decisively together, according to the report. In particular, it called for nations to “work together on solutions and private-public cooperation must ensure greater financial stability, technological and economic development and strengthen investment in research, science, education and health.”

Despite the conference’s focus and stark warnings on climate change, many Davos attendees are being criticised for their own inaction on climate change – with a recent study suggesting private flights during WEF 2022 alone added up to 9.7 kilotons of CO2 to the atmosphere – the equivalent amount generated by 350,000 passenger cars over the course of a whole week.