Joy Portrait Full Resolution

The cost of living crisis tops the list of near-term concerns in the WEF’s Global Risks Report 2023, but environmental challenges remain in the forefront today and for the next decade.

The cost of living crisis has overtaken extreme weather as the most severe risk facing the world within the next two years, according to the World Economic Forum’s (WEF’s) 18th edition of its Global Risks Report. However, environmental challenges – such as failure to mitigate climate change, large-scale environmental damage incidents and natural resource crises – continue to figure prominently in the near term and in 10 years’ time.

The WEF surveyed around 1200 experts to understand international business leaders’ main concerns ahead of its annual meeting in Davos this week (January 16–20).

Other risks in the top 10 include geo-economic confrontation, erosion of social cohesion and social polarisation, widespread cyber crime and cyber insecurity, and large-scale involuntary migration.

Most experts are fairly pessimistic in the near term, with 83% of those polled expecting the world to be looking at consistent, ongoing crises that are compounding each other in an increasingly volatile trajectory. The report uses the term “polycrisis”, which is a cluster of related risks with compounding impacts and unpredictable consequences.

“This current polycrisis situation is creating an incredibly challenging environment for [business] leaders,” said Saadia Zahidi, managing director, WEF, speaking at the report’s launch event in London on January 11.

Carolina Klint, risk management leader, continental Europe at Marsh, added: “The risks are surprisingly interconnected. One will impact and exacerbate another and this will certainly have an impact in terms of how businesses look at their strategies and investment decisions going forward.

“The relative predictability of the business environment has gone down, which is forcing companies to allow more slack in [their supply chains]. They have to invest a little bit more upfront in order to stay in business and build the needed resilience,” she continued. “Companies are turning from a just-in-time approach to a more just-in-case strategy.”

But, as Ms Zahidi, pointed out, there is no such thing as 100% preparedness. “One of the key messages of this report over the past 18 years is that we have to get much better at foresight and risk identification. We need to have basic aspects of resilience in place, with plans made ready once a shock unfolds. And we need a team-sport mentality for many things,” she said, highlighting public-private partnerships.

The report calls on leaders to act collectively and decisively, balancing short- and long-term views. In addition to urgent and coordinated climate action, it recommends joint efforts between countries as well as public-private cooperation to strengthen financial stability, technology governance, economic development and investment in research, science, education and health.

In a separate survey by EY and the Institute of International Finance (IIF) specifically around bank risk management, cyber security was identified as the top short-term risk. Almost three out of four (72%) of bank chief risk officers (CROs) identified cyber security risk as their top concern over the next 12 months, overtaking credit risk.

According to the survey of 88 banks across 30 countries, CROs are not confident in their ability to defend against cyber attacks, with 58% citing their organisation’s inability to manage cyber security risks as their top strategic threat over the next three years.

While credit risk overwhelmingly dominated global CROs’ attention (98%) in last year’s survey, only 59% felt the same way this year. However, this number goes up to 69% for European CROs. In addition, 77% of European CROs view it as a risk that requires the attention of the board of directors, relative to 45% globally.

Looking ahead, CROs expect environmental, social and governance (ESG) and climate risks to see the greatest increase in priority during the next three years: 88% of respondents said ESG risk is likely to increase most in priority in the next three years, and 84% said the same of climate risk.

Similar to the WEF’s assessment of the polycrisis situation for business leaders, the EY/IIF report highlights that banking industry CROs “face an extraordinary volume and variety of risks — traditional and emerging, external forces and internal pressures — nearly all of which seem to be increasing in urgency. But CROs’ biggest challenge may be understanding how intersecting risks can create single or multiple points of failure, even when traditional risk management metrics look stable.”

Joy Macknight is editor of  The Banker. Follow her on Twitter @joymacknight

Register to receive the Editor’s blog and in-depth coverage from the banking industry through the weekly e-newsletter.

PLEASE ENTER YOUR DETAILS TO WATCH THIS VIDEO

All fields are mandatory

The Banker is a service from the Financial Times. The Financial Times Ltd takes your privacy seriously.

Choose how you want us to contact you.

Invites and Offers from The Banker

Receive exclusive personalised event invitations, carefully curated offers and promotions from The Banker



For more information about how we use your data, please refer to our privacy and cookie policies.

Terms and conditions

Join our community

The Banker on Twitter