The WEF Risk Landscape From global to local; from this generation to the next David Forster Head of Risk, Zurich Municipal Institute of Risk Management North West Regional Group 11 April 2013
WEF Global Risk Report plus... more than 1,000 experts from industry government, academia and civil society other specialist institutions Nature PwC etc
Impact if the risk were to occur Economic risks, concerns over food, water and resources, and climate change and weather events continue to be top ranked risks Top rated risks in the 2013 Global Risks Report Major systemic financial failure Water supply crises Extreme volatility in energy and agricultural Failure of climate change Food shortage crises prices adaptation Global governance failure Chronic fiscal imbalances Chronic labour market imbalances Failure of diplomatic conflict resolution Mismanagement of population aging Rising religious fanaticism Persistent extreme weather Unsustainable population growth Cyber attacks Severe income disparity Likelihood to occur over the next ten years Economic Environmental Geopolitical Societal Technological Source: World Economic Forum, Global Risks 2013
Three distinct risk clusters are shaping the risk landscape over the next decade 1 Testing economic and environmental resilience Economic and environmental resilience is simultaneously tested Three primary risk cases 2 Digital wildfires in a hyperconnected world Hyperconnected communication systems enable the viral spread of misleading information 3 The dangers of hubris on human health Antibacterial and antimicrobial compounds (antibiotics) may be falling behind the pace of bacterial mutation Source: World Economic Forum, Global Risks 2013
Five X Factors to watch over the coming years Viewed as hatching grounds for potential future risks Runaway climate change What if the threat and impacts of climate change has passed the point of no return? Significant cognitive enhancement Rogue deployment of geoengineering Costs of living longer Discovery of alien life What consequences could a division into the cognitively-enhanced and unenhanced have? What if technology to manipulate the earth s climate has unintended consequences or was hijacked by a rogue country or individual? What are the costs of a future society that struggles to cope with the needs of the elderly? What would be the impacts of the discovery of existence of alien life or other planets that could support human life? Source: World Economic Forum, Global Risks 2013
Economic difficulties continue worldwide, while the impact of climate change is increasingly evident Testing economic and environmental resilience constellation Major systemic financial failure Severe income disparity Chronic labour market imbalances Unmanageable inflation or deflation Chronic fiscal imbalances Global governance failure Failure of climate change adaptation Food shortage crises Water supply crises Persistent extreme weather Rising greenhouse gas emissions The environmental system The economic system Source: World Economic Forum, Global Risks 2013
Debt as % of GDP US$ BN 2011 values Two storms environmental and economic are on a collision course Are countries prepared to manage both fronts? Estimated damage caused by natural disasters (1950 2011) General government gross financial liabilities as a percentage of GDP (OECD Total) Source: EM-DAT: The OFDA/CRED International Disaster Database www.emdat.net Université catholique de Louvain Brussels Belgium; OECD Economic Outlook No. 92 (database)
Digital wildfires in a hyperconnected world
The dangers of hubris on human health
The antibiotic discovery void
Major changes since the 2012 report Seeds of dystopia Zurich research on how this is reflected in the UK How safe are our safeguards? Testing economic and environmental resilience The dark side of connectivity Digital wildfires in a hyperconnected world The dangers of hubris on human health
From global to local
newworldofrisk.com
Seeds of dystopia Bulging populations of young people with few prospects Growing numbers of retirees depending on debt-saddled states (stoking fiscal imbalances) Expanding gap between rich and poor fuels resentment worldwide These trends risk undoing the progress that globalization has brought
Population demographics in 2025 Number of people age 65+ per every 100 working age individuals 8.0 14.7 36.3 100 years Least developed countries Emerging countries Developed countries Retirement age (65) 50 years Enter workforce (20) 0 years Source: Data from World Population Prospects: 2010 Revision. New York: United Nations Department of Economic and Social Affairs, 2010
Bringing together two reports
Rate ability When prompted, policy changes and budget uncertainty are seen to be the biggest risks Lower importance Lower ability to deal Higher importance Lower ability to deal Climate change Social risk e.g. population changes, crime, anti-social behaviour Working with other organisations Workforce Data protection or security risks Operational risk management including health and safety Changes in government policy, legislation and regulation Reputation management Budget uncertainty Lower importance Good ability to deal Important Higher importance Good ability to deal Base: Public sector and voluntary organisation chief executives and other board-level directors (100),
Conclusions Budget cuts are still to come, but Other risks exist, and are often impacted or exacerbated by cuts Workforce, supply chain and reputation issues are seen to present significant risks Danger that long term strategy will be sidelined due to short term financial constraints Cutting too much? Future-proofing service provision? Loss of community cohesion? Despite the gloom, opportunities to transform the look and structure of local government Will require new management techniques and different skills
Risk and Response: the emerging dynamics of major incidents in public services and civil society
Key areas of vulnerability Vulnerability in a connected world Transition risk: operations and governance in flux Volatility in a new financial landscape Growth of socio-political incidents Unpredictability of severe weather events Plan for the future Further support from central government Support resilience in the wider community Improve reputation management skills Escalate governance up the board agenda Protect sustainability in the new financial environment
National Audit Report.- some conclusions These changes increase financial uncertainty... This risk will not manifest itself evenly across the sector... This risk must be identified early so it can be managed effectively. Central Government must also satisfy itself that it understands the cumulative impact of funding changes. 12% of LAs at risk of not balancing future budgets. 27
Information used on 2010 spending review Source: NAO report Financial Sustainability of Local Authorities, January 2013
Differences in local authorities: performance against budget 2011-12 Source: NAO report Financial Sustainability of Local Authorities, January 2013
How well placed to deliver budget in the short and medium term? Source: Audit Commission report Tough Times 2012, November 2012
Detroit in numbers $327m budget deficit $14bn long term debt Population 40% of 1950 peak 1 in 3 in poverty 15.8% unemployment >50% of property owners fail to pay tax
From one generation to the next
Bringing together two reports
Reduce welfare support Disengaged/ disaffected Support NHS Disrespected Global risks Reduced capacity of state and civil society Plus ca change: - conservative - aspirational - optimistic
Young people are interested in politics, but not happy with the way it is done.
General election turnout has decreased faster for under 25s.
Only older people get represented!!
Reduce welfare support Disengaged/ disaffected Support NHS Disrespected Let s go online Global risks Reduced capacity of state and civil society Plus ca change: - conservative - aspirational - optimistic Low asset / high debt Expectations gap
Managing global risks: how we need to respond
Kaplan and Mikes three types of risk Preventable Risks such as breakdown in processes and human error Strategic Risks undertaken voluntarily after weighing them against the potential rewards External Risks beyond one s capacity to influence or control Can be approached through traditional risk management methods, focusing mostly on organizational culture and strict compliance Cultivating resilience is the preferred approach
Applicability of resilience
Building national risk resilience The ability to withstand, adapt and recover from shocks Resilience is bouncing back faster after stress, enduring greater stresses, and being disturbed less by a given amount of stress maintaining system function in the event of a disturbance the ability to withstand, recover from, and reorganize in the event of a crisis For an object For a system For an adaptive system Source: World Economic Forum, Global Risks 2013
Components of Resilience A focus on national resilience to assess national preparedness to respond to risks Macro System Country Subsystems Economic Environmental Governance Infrastructure Social Resilience characteristics Robustness Robustness Robustness Robustness Robustness Redundancy Redundancy Redundancy Redundancy Redundancy Resourcefulness Resourcefulness Resourcefulness Resourcefulness Resourcefulness Resilience performance Response Response Response Response Response Recovery Recovery Recovery Recovery Recovery Source: World Economic Forum, Global Risks 2013
Association of national risk management effectiveness and overall competitiveness
Changing competitiveness to resilience
Revisiting last year s risk cases: resilience practices Seeds of dystopia How safe are our safeguards? The dark side of connectivity 1. Seek holistic insights and involve a range of stakeholders 1. Question the validity of assumptions underlying safeguards 1. Assign top level responsibility for cyber resilience 2. Monitor trends and revisit assumptions 2. Build forward looking elements into safeguards 2. Share cyber knowledge in trusted public-private forums 3. Promote inclusive and open attitudes towards immigrants 4. Diversify risk through innovative financing Example: InvestMichigan! Mezzanine Fund 3. Leverage market and other incentives 4. Coordinate actions across borders and organisations 3. Coordinate among governments during crises 4. Design resilient electronic devices and online systems Source: PwC report annexed to WEF Global Risks 2013 see www.weforum.org/globalrisks2013/followup2012
Thank you and questions David Forster david.forster@uk.zurich.com