Extreme weather seen as most critical global threat: WEF report

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The latest Global Risks Report 2022 from the World Economic Forum (WEF) found that climate risks dominate global concerns, but that declining social cohesion, cyber threats and how the world recovers from the pandemic are all viewed as sources of significant uncertainty as well.

Weather image from DreamaticoThe World Economic Forum (WEF) Global Risks Report is produced in collaboration with broking powerhouse Marsh McLennan, insurer Zurich and conglomerate SK Group.

The report is based around a survey of risk professionals from across the globe, so provides a valuable insight into what risks and threats are perceived to be most urgent to address, as well as what priorities may be over the longer-term.

As ever, climate, catastrophe and weather risks feature strongly and this year it is clear that respondents are increasingly concerned about the potential for severe weather threats to accelerate dramatically.

In fact, extreme weather is viewed as the most critical threat for the next two years, with 31.1% placing it as the most urgent short-term threat.

Climate action failure was cited by 27.5% as likely to become a critical threat in the next two years as well, which of course likely plays into the responses on extreme weather.

Over a longer-term horizon, of 5 to 10 years, over 42% said extreme weather will be a critical threat to the world by that stage.

Extreme weather features in the lists of the top two global threats seen as critical over the short, medium (2 to 5 years) and long-term as well, reflecting the importance respondents place on this risk and increasingly on being able to manage or mitigate it.

Over the medium and long-term, climate action failure is placed as the most critical threat, which of course could play into extreme weather and failing to respond to climate risk may exacerbate extreme weather, meaning these are likely intrinsically interlinked in the eyes of many respondents.

Risks and threats related to climate change, biodiversity loss, weather and the environment feature heavily in the report this year, with the rankings driving home an increasing global awareness of the potential severity of extremes the planet may face in years to come, if the response to climate change is inadequate.

All of which suggests a growing role for insurance, reinsurance and of course insurance-linked securities (ILS), as along with a rising perception of these threats, there is likely to be an increasing urgency to better manage, mitigate and respond to them as well.

There is a significant focus on climate and weather in the report this year, with the WEF authors explaining, ““Extreme weather” and “climate action failure” are among the top five short-term risks to the world, but the five most menacing long-term threats are all environmental. “Climate action failure”, “extreme weather” and “biodiversity loss” also rank as the three most potentially severe risks for the next decade. While GRPS respondents’ concern about environmental degradation predates the pandemic, increasing concern with climate action failure reveals respondents’ lack of faith in the world’s ability to contain climate change, not least because of the societal fractures and economic risks that have deepened.”

Peter Giger, Group Chief Risk Officer, Zurich Insurance Group, commented on the report, “The climate crisis remains the biggest long-term threat facing humanity. Failure to act on climate change could shrink global GDP by one-sixth and the commitments taken at COP26 are still not enough to achieve the 1.5 C goal. It is not too late for governments and businesses to act on the risks they face and to drive an innovative, determined and inclusive transition that protects economies and people.”

Carolina Klint, Risk Management Leader, Continental Europe, Marsh, added, “As companies recover from the pandemic, they are rightly sharpening their focus on organizational resilience and ESG credentials. With cyber threats now growing faster than our ability to eradicate them permanently, it is clear that neither resilience nor governance are possible without credible and sophisticated cyber risk management plans. Similarly, organizations need to start understanding their space risks, particularly the risk to satellites on which we have become increasingly reliant, given the rise in geopolitical ambitions and tensions.”

“Health and economic disruptions are compounding social cleavages. This is creating tensions at a time when collaboration within societies and among the international community will be fundamental to ensure a more even and rapid global recovery. Global leaders must come together and adopt a coordinated multistakeholder approach to tackle unrelenting global challenges and build resilience ahead of the next crisis,” Saadia Zahidi, Managing Director, World Economic Forum further explained.

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