The World Economic Forum (WEF) facilitate an annual survey of experts and industry leaders to help identify key global risks, their relationships, and how they may influence global populations over the next decade and beyond.
A review of the 2012 and 2013 reports should give all financial services leaders pause, regardless of your organizational role. Local, regional, and global financial services organizations have often-outsized material influence across many dimensions of industry, infrastructure, governance, and the application of science and technology across the globe.
The scope and scale of these influences requires that all of us involved in financial services make increasingly-informed decisions in the context of their potential, sometimes likely, impacts.
One of the key reasons that WEF has been investing in this area is to support what they describe as “Improving insight.” They intend that reports like these will assist thinkers, decision-makers, and others by enhancing their risk mitigation efforts — allowing them to move given risks “as far as possible along the continuum from ‘unknowable’, through ‘unknown’ to ‘known’ so that risks become increasingly manageable.” They continued, “For this to happen we need to deepen our collective understanding of global risks and develop better insight into their causes and the relationships between them.” [2006 page 29]
The WEF has an established track record of accurately characterizing future risks. Consider their 2006 list:
- Asset bubbles and the massive misallocation of capital (e.g., the US property market).
- Oil, the short term spike and possibly high or volatile prices in the long term.
- A global current account imbalance.
- China’s possible troubles in the banking system and geopolitical tensions.
- A fiscal crisis in the industrialized countries has far-reaching impacts.
The 2012 & 2013 reports are built around a 10-year outlook for fifty critical global risks.
Risks are categorized as economic, environmental, geopolitical, societal or technological.
Each risk is characterized by the perceived impact, likelihood and interconnectedness with other specific risks.
Most of risks are ranked as high-impact and high-likelihood (using a 1-5 scale).
These are all “big” issues. Each, independent of the others, deserves serious attention, serious thinking, serious action, and serious funding. None of these issues has a well-defined and globally-accepted solution.
The reports characterize ‘global’ risks as “having global geographic scope, cross-industry relevance, uncertainty as to how and when they will occur, and high levels of economic and/or social impact requiring a multi-stakeholder response.”
One key message is that these issues influence each other in ways that must be acknowledged and addressed.
Again, financial services professionals are uniquely positioned to play leadership roles in influencing a number of these big risk issues.
The report identifies five risks that it considers ‘Centers of Gravity’ — or risks of greatest systemic importance.
“For risk-related planning, Centres of Gravity should serve as focal points to guide strategic interventions.” [2012 page 11]
These centers of gravity include:
- Chronic fiscal imbalances (economic)
- Greenhouse gas emissions (environmental)
- Global governance failure (geopolitical)
- Unsustainable population growth (societal)
- Critical systems failure (technological)”
The report identifies “Critical Connectors,” which are risks join the five centers of gravity into one coherent system.
The four critical connectors include:
- Severe income disparity (economic)
- Major systemic financial failure (economic)
- Unforeseen negative consequences of regulation (economic)
- Extreme volatility in energy and agriculture prices (economic) [2012 page 14]
An excellent illustration of these relationships is “Figure 7: Global Risks Map 2012 (detailed)” on page 14 .
The 2013 report included information and an illustration highlighting the top five changes in the 50 risks list between 2012 and 2013 by ‘likelihood’ and by ‘impact.’ [2013 page 11]
In an attempt to help put this information in context, authors outline three in-depth case studies or ‘risk cases’ exploring themes they derived from the risk data.
In 2012 authors described a dark future in “Seeds of Dystopia,” “How Safe are out Safeguards?” and “The Dark Side of Connectivity.” Read them.
In 2013 they work through an analogous exercise in “Testing Economic and Environmental Resilience,” “Digital Wildfires in a Hyperconnected World,” and “The Dangers of Hubris on Human Health.”
These reports are based on survey responses (469 in 2012, and over 1000 in 2013), as well as expert panel discussions, and author’s research.
For an example of how effectively some of their data can be summarized, see page 48 of the 2013 report. The authors clearly illustrate the likelihood/impact distributions for all the survey responses for all topics on a single page. Many of us could learn from them.
Ok. For information, infrastructure, and operations security professionals, there are some more immediately-actionable content. The ‘Technology Risks’ section is led by ‘cyber-attacks,’ ‘critical systems failure,’ and ‘massive incident of data fraud or theft.’
I strongly recommend that all financial services security professionals read and think about the content in these reports. Share them across, up, and down your organizations. And consider what next?
Global Risks 2013 – Eighth Edition
Global Risks 2012 – Seventh Edition
World Economic Forum Global Risk Report 2006