Global Risk Network Presents 2009 Report for World Economic Forum

Several people remarked that the presentation of the Global Risk Network’s analysis of the biggest risks facing the world in 2009 was unusually well attended – a sign perhaps that in the current economic crisis the word and the meaning of “risk” has become increasingly important.

At a press conference, held in Marsh’s London office, the Global Risk Network presented its Global Risks 2009 analysis for the upcoming World Economic Forum’ in Davos in February.

Sheana Tambourgi, Director and Head of the Global Risk Network at the World Economic Forum, opened the conference. She noted that this year’s report “builds on the work of previous years and highlights the need for concerted action to mitigate risks that now more than ever are global in their nature and in their impact, as illustrated by the financial crisis. But the same is true for other risk areas; global risks require a multistakeholder response and cannot be appropriately tackled in isolation.”

The report analyzes a number of risks, but it identifies the following as the most serious, and the therefore the ones needing immediate attention;
1) The financial crisis – The continuing deterioration in global finance, notably the diminishing “fiscal balances” among the G8 countries, has worsened and is projected to continue throughout 2009.
2) Slowing growth in China – it is probably going to be below six percent in 2009, which could result in both internal problems and “would have significant impact on the already weak global economy.”
3) The collapse of asset prices – this will continue, leading to “bankruptcies and credit defaults.”
4) Resource challenges – Despite the fiscal crisis, concerns over “climate change- related weather events and declining water quality and availability as well as energy” related risks continue to be a high priority.
5) Global governance gaps – This new category of risk, introduced in this report, highlights the “absence or lack of effective and inclusive governance on global issues.” Without a more coherent framework dealing with global risk issues will remain fragmented.

John Drzik, CEO of Oliver Wyman, an MMC operating company, expanded on the need “to embed better risk governance.” He indicated the current financial crisis offers a salutary lesson on what can happen when risks are ignored, or not treated seriously enough. “Companies must ‘ask the right questions,'” he said. “What risk can kill our organization?” Ultimately the analysis comes down to what is an acceptable risk, and what “risks are out of line.”

Daniel M. Hofmann, Zurich Financial Services’ Group Chief Economist, said: “In 2008, financial and economic risks materialized considerably. However, the global economy is still not in the clear yet as it continues to be prone to substantial volatility. One of the biggest risks is that short-term crisis fighting may induce businesses and governments to lose the long-term perspective on risk.”

Expanding on that statement, he explained that the asset price collapse (values on world stock markets declined by 42 percent in 2008) means that “2009 will be the year when the financial crisis morphs into the real economy.”

Hoffman also pointed out that the current concern with the economy could lead to a “retrenchment from globalization,” especially in developing countries, who, “after 20 years of growth, now stand to lose the most.” He suggested that as a result there would be increases in protectionism, as countries seek to shore up local companies at the expense of foreign competitors.

Developing countries are also the ones most at risk in other areas. Swiss Re’s Chief Risk Officer Raj Singh said: “The poorest nations will suffer most from climate change because they lack the infrastructure and institutional framework to cope. Unfortunately, these are also the countries that are worst affected by weather-related disasters.”

He also stressed that “climate change is real,” and that continuing efforts are needed to prepare the world – especially the developing world – for the changes that it will bring, and has in fact already brought. “The Copenhagen Conference [to be held later this year] offers a chance to address climate change issues,” Singh said. He pointed out that developing countries insurance and risk transfer payments are only around two percent of their GDP, compared with an average four percent in the developed world.

At the question and answer session following the presentation, Zurich’s Hoffman offered a trenchant observation on trust, or more exactly the lack thereof. “You have to walk the walk, not just talk about doing it,” he said. In his opinion government regulations failed to prevent the crisis, and they are critical to restoring trust in the system. “But,” Hoffman warned, “you cannot regulate human behavior, what you need to regulate is excessive risk taking.”

The report, however, concludes on a positive note, stating that “2009 could prove to be an opportune moment to strengthen global governance and build the political will to restore global financial stability, and focus on the longer term challenges of managing scarce resources and climate change.”

How closely the participants at the Davos Conference pay attention to its findings and recommendations will go a long way to see if the world’s political, business and cultural leaders have gotten the message.

Full report, graphics, vodcast with Sheana Tambourgi, editor of the report and director and head of the Global Risk Network at the World Economic Forum, and more can be accessed at: http://www.weforum.org/globalrisks. More information on the Forum itself can be obtained at: www.weforum.org/annualmeeting.

Source: World Economic Forum