Environmental Issues Pose Biggest Risks in the Upcoming Decade

December 10, 2020

For the first time in the history of the annual World Economic Forum Global Risks Report, one category occupies all five of the top spots: the environment.

From January to July 2020, companies were asked to identify what they considered were the major risks for doing business in their countries over the next decade. More than 12,000 respondents from 127 countries ranked climate change and related environmental issues as the top five risks in terms of likelihood. These risks, in order, include:

  1. Extreme weather
  2. Climate action failure
  3. Natural disasters
  4. Biodiversity loss
  5. Human-made environmental disasters

The top five in terms of impact are closely related:

  1. Climate action failure
  2. Weapons of mass destruction
  3. Biodiversity loss
  4. Extreme weather
  5. Water crises

See the World Economic Forum’s Regional Risks for Doing Business Interactive Map for more details.

In the beginning of the pandemic and its resulting lockdown, worldwide reports of reduced traffic congestion, clearer skies, cleaner waterways and the emergence of wildlife into human settlements had environmentalists cautiously optimistic. Beneficial long-term physical effects were also detected such as improved air quality and reduced seismic noise, as well as socioeconomic indicators such as reduced mobility and declining economic growth and greenhouse-gas emissions. (Diffenbaugh, N.S., Field, C.B., Appel, E.A. et al. The COVID-19 lockdowns: a window into the Earth System. Nat Rev Earth Environ 1, 470–481 (2020). https://www.nature.com/articles/s43017-020-0079-1)

But sustained lockdowns are not only unrealistic, but also carry negative effects in their own right. Add to this political upheaval, broken international alliances, increased nationalism, and the world no longer has the capacity or resources to work together to combat these issues.

Nor the desire. Countries are adapting to perhaps one of the most dramatic effects of climate change—the melting of Arctic ice — by exploiting the opportunity for fish, gas and other natural resources, and the use of new shipping lanes. China has dubbed the region the “Polar Silk Road.”

“Amid this darkening economic outlook, citizens’ discontent has hardened with systems that have failed to promote advancement,” writes Børge Brende, in the report’s preface. “Without economic and social stability, countries could lack the financial resources, fiscal margin, political capital or social support needed to confront key global risks.”

Other Than the Environment

In addition to the environment, Artificial Intelligence (AI) is a huge focus of many businesses.

According to the report, Russian President Vladimir Putin said in 2017, “Whoever becomes the leader in this sphere will become the ruler of the world.”

China made AI a national security priority, making it a focus of the China 2025 industrial plan.

Speaking of China, the report highlights the importance of staying abreast of the “detangling” of the economies of the United States and China, going as far as to warn that this action may be the harbinger of another Cold War.

The report says: “As the outlines of the next geopolitical era start to emerge, there is still uncertainty about where the distribution of power will settle and from where influence will emanate, but a snap back to the old order appears unlikely. If stakeholders attempt to bide their time, waiting for the old system to return, they will be ill-prepared for what lies ahead and may miss the point at which key challenges—economic, societal, technological or environmental—can be addressed. Instead, longstanding institutions must adapt to the present and be upgraded or reimagined for the future.”

The World Economic Forum Global Risks Report is a great source of information for corporate risk managers to be aware of the types of risks that they should look at. And with environmental risks among the highest, Environmental, Social, and Governance (ESG) factors are sure to rise in importance.

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Laurie Toupin