Welcome to the age of the polycrisis: the Global Risks Report 2023

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Peter Giger, Group Chief Risk Officer at Zurich Insurance Group: I think 2023 will be a very interesting ride and I'm not sure people are sufficiently aware of the risks, of the uncertainty, because we're confronted with something we haven't seen before.

Robin Pomeroy, host, Radio Davos: Welcome to Radio Davos, the podcast from the World Economic Forum that looks at the biggest challenges and how we might solve them. On the eve of the Annual Meeting in Davos, we're looking at the Forum's annual Global Risks Report to find out what humanity sees as the biggest risks we all face.

Carolina Klint, Risk Management Leader, Marsh: It's also raised the spectre of geopolitical confrontations and maybe even nuclear warfare in Europe, which we haven't had to consider for years.

Robin Pomeroy: We talk to two of the people behind the Global Risks report who explain why this is the era of the 'polycrisis'.

Peter Giger: We're coming out of an era of almost unnatural stability that we saw for maybe 15, 20 years. Because if you look at human history, what we experienced today seems not so out of the norm when stability is something that was not observed in history for very long periods of time.

Robin Pomeroy: War, pandemics, climate change, inflation, what are the risks and how should we face them?

Carolina Klint: We're facing numerous interlinked crises. We need to come together to solve these challenges.

Robin Pomeroy: Subscribe to Radio Davos wherever you get your podcasts, leave us a rating and review and join us on the World Economic Forum Podcast Club on Facebook. I'm Robin Pomeroy at the World Economic Forum. And with this look at the Global Risks Report 2023.

Carolina Klint: Improve collaboration. That would be my hope.

Robin Pomeroy: This is Radio Davos.

'As 2023 begins, the world is facing a set of risks that feel both wholly new and eerily familiar.'

I am reading from the executive summary of the Global Risks Report 2023, the result of a huge annual survey conducted by the World Economic Forum in collaboration with Marsh McLennan and Zurich Insurance Group. I'll carry on quoting it.

'We've seen a return of older risks inflation, cost of living crises, trade wars, capital outflows from emerging markets, widespread social unrest, geopolitical confrontation, and the spectre of nuclear warfare which few of this generation's business leaders on public policymakers have experienced.'

The Global Risks Report is a fascinating read. It looks at short-term and long-term perceptions. And in the longer term, or the medium term, the threat posed by climate change is the top risk on a ten-year time horizon. But in the short term, worries about natural disasters and extreme weather fall to second place, pushed off the top spot by the cost of living crisis.

You can find the report at wef.ch/grr2023 - that's for the Global Risks Report. It's required reading ahead of the World Economic Forum's Annual Meeting in Davos, which is just days away as I record this. That's where figures from government, business, academia and civil society will come together to discuss the world's most pressing issues.

For this episode of Radio Davos, my colleague Gayle Markovitz linked up with two of the people involved in creating the Global Risks report, Carolina Klint, managing director at Marsh, and Peter Giger, Group Chief Risk Officer at Zurich Insurance Group, who had plenty to say about the policy crises the world faces and how we might face them. Here's Gayle.

Gayle Markovitz, World Economic Forum: So Carolina, in some ways, the top current risks this year feel like a bit of a step backwards to the basics of solving food, energy and inflation and the cost of living crisis. And how do we get here and how can we move forward.

Carolina Klint: You know, I couldn't agree more. And I would say that we're looking at something that feels new but also eerily familiar. So to your point, we're dealing with some of these very basic risks, and it is as a result of the compounding political, economic, environmental and societal social events that we've faced over the past two years.

And the COVID-19 pandemic caused such seismic shifts in employment, healthcare, education, supply chains, digitisation and debt burdens. And all of this are significant contributors to us taking this step backwards. And I would say we we haven't recovered from it yet.

So we're seeing new wave of infections. I mean, look, what's happening in China now is they're opening up and vaccination rates are slowing down. And, you know, we still see productivity impacts worldwide.

And then, of course, the Russia-Ukraine conflict, which also takes place in a region which is vital for agriculture, energy, raw materials, which has also further amplified the impact of these basic risks.

And it's also created many spill-over effects in terms of migration or cyber risk, cyber warfare. And it's also raised the spectre of geopolitical confrontations and maybe even nuclear warfare in Europe, which we haven't had to consider for years.

And then on top of this, the list continues, right? So on top of this, of course, climate change events. So we've been confronted by dozens of billions of dollars, natural catastrophes over the past year, which has also added pressure on the price of food and other necessities and in in turn, has led to social unrest and political turmoil because people are getting desperate.

So it seems like quite a daunting challenge. But I do think with all that said, there is a way forward. But we really cannot just apply quick fixes or short-term solutions. So today's risks have longer-term implications for geopolitical relationships, for economies, for people and the planet. So I think we need to think more imaginatively and collaboratively about how we approach preparedness and resilience and not be afraid to make those required investments and the market structure changes that will strengthen our ability to anticipate and respond to compounding risks and polycrises in the future.

Gayle Markovitz: And Peter, in your blog that you've written for the World Economic Forum, you mention that the 'climate mitigation scorecard' has gone from green to red. Are we in danger of falling short on tackling climate and biodiversity crises as we pivot to fix these basics.

Peter Giger: Indeed, there is now a more and more apparent risk that we are falling short of the required changes. I mean, we saw some light on the horizon during the COVID crisis, but the bounce back after it has been pretty impressive or depressing, as you want, The Russian invasion into Ukraine and the following price increase in carbon-based energy has demonstrated again the unwillingness of of accepting higher carbon prices which will be required to actually drive the transition over time.

It seems like the 2050 [net zero] target is misunderstood as an invitation to do nothing and avoid the disruptive pains of an adaptation process, at least in the short term. And I think people have not accepted that the era of cheap carbon energy will come to an end, and it's only a matter of time when it will come to an end. And it's only a question of whether we destroy the planet on the way.

Gayle Markovitz: In the report, we talk about how policymakers are increasingly confronted by perceived trade-offs between energy security, affordability and sustainability. What are the tangible actions that we should be taking today in this space that don't come at a future cost? And can you give us some examples?

Peter Giger: We're advocating meaningful carbon pricing. We did that before. It's still true. And now what we see is actually quite the opposite. There is regulatory intervention and subsidies to keep carbon price low, which is totally counterintuitive.

The most important element would be stable regulatory rules and predictable policies. A recent study in Switzerland found that individual rooftop solar panels would offer quite attractive ROIs to investors and individuals. So why didn't people invest when money was actually cheap? The most obvious explanation is that they didn't trust regulation to be stable over the long time required to amortise the investment. So policy is really failing on giving people clear signals and developing the trust that is required to make the transition investments over time. Now, stability in trust comes at relatively low cost, and it's just a matter of political will and political predictability, both of which are unfortunately not seen much these days.

Gayle Markovitz: And and do you think we will see it? Do you think we've reached a tipping point?

Peter Giger: I'm an eternal optimist, and so maybe we will. But at the end of the day, we see a lot of people with good intentions. We see people making decisions at the edge of economic considerations because they feel it's the right thing to do. And so there is hope. However, again, the amount of my concerns is that we put too much pressure on just a small number of factors like the financial industry. I mean, everybody says we need green finance. Well, that's all well and good, but in the end it has to arrive at the consumer. Consumer behaviours have to change and there is no way around that adoption. And at one stage it will be painful and I'm not sure when we will be ready to accept the pain. How many years of continued warming we will need to see. But ultimately, I think the writing on the wall will be such that we can't avoid the conclusions and questions.

Gayle Markovitz: Question to Carolina:, given that we're entering a new era, essentially, of low growth, low investment, low cooperation, tougher trade offs for governments, not only in energy, but also broadly across social, environmental, technological and security concerns, what do you think investment in resilience looks like, and how can the private sector get involved? And what should businesses be thinking about as they move into 2023?

Carolina Klint: I think, first of all, trade offs, even in the best of times, are impossible to avoid and there will always be limits to the resources that we can spend on resilience. And that's just a fact, right?

But a resilience mindset with focus on strategies that help position us better for long-term risk and structural changes, that is what can really help help us reduce uncertainties and help us make better decisions about where we need to invest those limited resources. And I think maybe it would take more time than we have today to talk about what resilience investments should look like for individual risks, such as climate change, or healthy work, or home environments or cybersecurity. And again, the list continues. But there are some frameworks that governments and businesses can work through together and individually too, that support preparedness and long-term resilience across many intertwined risks.

And some of the core principles that are also outlined in this year's report include strengthening risk identification and foresight, really having that future vision of what is on the horizon and also recalibrating the present value of future risks, investing in multi-domain risk preparedness, and then also strengthening general preparedness and response cooperation, because there's a lot that really goes with working together to address these risks.

And I think in terms of collaboration by governments and the private sector, I think there is an opportunity to balance short- and long-term views of risk management better. And I also think allocating risks more meaningfully to whomever is best suited to manage them. I think that's another area. And and more agile regulations that properly embrace resilience, whether it's in trade, education, effective stimulus mechanisms and of course, data. So more effective data sharing mechanisms because we are in this together and we need to be a little bit more open in terms of sharing data.

And, you know, specific examples on how collaboration could work is, for example, closing key gaps in financing, governance and implementation of measures for preparedness for both emerging and well-established risks, like food insecurity, which is a big topic now, right? Or just stressed-out healthcare systems or cyber, for example, addressing the insurance gap related to cyber generally or cyber warfare.

So there are a lot of different examples that I can think of. I think that's really what it's all about, thinking differently about risks, how they are interconnected, how they can suddenly accelerate, what their impact could be on values, economies and communities, and what the options are in terms of response. But to do it in a collaborative way.

Gayle Markovitz: It kind of goes against human nature, doesn't it? Because you mentioned time quite a lot and you know, what's present, what's future. And the report itself, I know, separates urgent from near-term to longer-term risks. There's a two-year foresight. There is the ten-year trajectory. Do you think we need to have really battle human nature and think about all of these risks, even if it's a ten-year time frame that we're talking about that really needs to be dealt with now simultaneously.

Carolina Klint: And I agree with you. It goes against human nature because we're so trained or so defaulted to look at what is right in front of us. And just look at the fact that infectious diseases fell off the top rankings of this year's report. I mean, I don't think that will come as a shock to anyone that we're not out of the woods yet, that there might be another pandemic on the horizon. And even though we managed at the end to navigate COVID-19 well, I don't know if I should say reasonably well. But anyway, here we are. We're still alive. But there are so many lessons learned and there are so many things that we could have done better. So absolutely, I think there is, you know, this constant conflict between focusing on the short-term and the long-term, but we just need to get better at doing both.

Gayle Markovitz: Question to Peter: Carolina, you mentioned earlier the word 'polycrisis', which which comes out in the report. Do you think we are we are in a new era of volatility and cascading crises. And can you explain what you mean by polycrisis?

Peter Giger: First of all, it seems to be the time where we invent a word for everything we haven't seen. And maybe the perception is a bit flawed because more likely we're coming out of an era of almost unnatural stability that we saw for maybe 15, 20 years. Because if you look at human history, what we experience today seems not so out of the norm when basically stability is something that was not observed in history for very long periods of time.

Having said that, we've built a world that that produced a lot of wealth for a lot of people through connecting, through trade, through openness, and now all of a sudden we realise that the foundation for all of that wasn't strong enough to really secure the benefits that we thought we had. And we are confronted with the fact that we may lose some of the benefits that globalisation has produced over the last 20 years, and obviously that will have an impact on general wealth levels.

So I think yes, the era that we've gone through was quite stable. I think the outlook is probably less stable. And every generation thinks they're experiencing the worst headwinds in history. I think that's also very human. But then at the end of the day, what it takes is trust into the future. I mean, in the dark ages, people built churches over generations. How have they done that? And why can we that we think are culturally so advanced, not come together in a project that takes us 25 years? So that's just a generation. We're not talking 50 or 100 years. But still, it takes the trust into the future and the sense of the common good as well.

Part of the issue is the very far advanced individualisation, mostly of Western societies, where the individual good is much worth a lot more than the common good. And to an extent, that's part of the challenge we're looking at. We need to come back to a perception where the common good has a value as well, and not only the individual well-being.

Gayle Markovitz:. And just returning to Carolina, you did touch on this a little bit earlier, but given the interconnectedness of risks which is somehow kind of more obvious than ever now, how should we be changing the way we approach global risks in a broad sense?

Carolina Klint: Yeah, great question. And I really believe that the focus on improved resilience is the answer to these, you know, very interlinked geopolitical, geo-economic, societal crises that we're facing. And I think Peter talked about the concept of polycrises and what that means. And I think it really illuminates how global crises are interconnected, intertwining and worsening one another. And I think it's helpful to think about it in terms of guidance for how we should look at the world and what is coming at us on the risk horizon and to effectively prepare for these global risks.

We have to stop worrying that the required investments will be a drag on national or corporate growth. And we need to prioritise implementing a resilience mindset that runs deeply through everything, whether it's our boardrooms or supply chains or sustainability targets or approach to worker health and well-being. And if we focus on strategies that position us well for longer term risks and structural changes, I think we can reduce uncertainties and make better decisions about where to invest the limited resources that we have.

But it will take some creativity and it will take collaboration and collaborative thinking across public and private sectors and a willingness to cooperate across borders to be successful. And unfortunately, given where we are today in the world, it seems that we have more frictions than collaboration.

So it's not a good moment in time in terms of, you know, increased collaboration. But if we're able to do that, we will be so much better prepared for and able to respond to both, you know, today's compounding risks, but also coming polycrises. And it will be with better agility and we will be better that are in a better position to create a more secure and stable future, which I think everyone has an interest in.

Gayle Markovitz: You mentioned health as one of the things that did not make it into those top risks this year, which is is astounding. But is there anything else that that was missing?

Carolina Klint: Yes. And, you know, again, back to the fact that infectious disease fell so far down the rankings of long-term risks, I think there is some complacency setting in. And I think we have to realise now infectious disease could really arise from failure to mitigate climate change. And that is something that we're definitely looking at, right. And that's ranked as a top ten risk for sure. It's dominating both short and long term outlooks.

And also I think we need to connect this a little bit to a health crisis that could potentially arise out of an interstate conflict, because if a disease is weaponized we're looking at a completely different landscape. So it just goes to show how interconnected risks are.

But I think what else in my surprise didn't make the list. I think probably we should be a little bit more concerned about the employment crisis. We've seen the stress test, that rapid social transformation and those unexpected crises can have on employment and employability. And as we continue to digitize our economies and automate workplaces and processes and move towards more of service economies, I think it will be really crucial that opportunities for work, you know, upskilling, required education, that that remains available and that we have liveable wages and benefits and that there are no race or gender or other barriers to employment because failing to do that could again bring us into this negative spiralling loop of social unrest, deeper polarisation and really a weakening of resilience capabilities. So I think probably employment crisis will be another one that I would mention.

Gayle Markovitz: Interesting. Do you think there's anything missing, Peter?

Peter Giger: Well, I think one of the things that is a concern is the fact that we're looking at the composition of factors that we haven't seen before. We see high inflation with low unemployment. And again, it's totally unclear whether the policies make sense because the policies are derived from past experience. But we haven't looked at a situation like that, really. And so I think 2023 will be a very interesting ride, and I'm not sure people are sufficiently aware of the risks of the uncertainty because we're confronted with something we haven't seen before.

Gayle Markovitz: Do you feel that there's something to be optimistic about for this coming year?

Peter Giger: Well, at the end, I think the optimism always comes from the opportunity. And I think decarbonisation is the next industrial revolution. And I said that before. And every industrial revolution has made the world a better place. So why would this one be different? And I think it's the lack of optimism and a lack of of resilience at the individual level in terms of adapting to change that is holding us back in like venturing into the future. Now we will have to get there anyways. But it seems if if I take today's mentality 100-150 years back, I think we would still ride horse carriages. And we shouldn't forget hay was the most important fuel for the economy at one stage. And and it has changed and it will change again. So I think that's my source of optimism.

Gayle Markovitz: And Carolina...

Carolina Klint: Anything to be optimistic about? You know, I think about it from the business perspective, and I have to say there are so many opportunities that can be captured with the right focus on resilience, with empowering your employees, leaders to make quick decisions when unexpected things happen, when looking at improving and increasing diversity around the table, when looking at your risk outlook to make sure that you capture everything that is moving on the horizon and really work through from moving from maybe more static risk management and risk mitigation to more of a strategic view on integrating risk with strategy, because that way you can really align your strategies with the direction of change and capture opportunities that comes with it. And I think that is something to be very, very optimistic about.

Gayle Markovitz: The Risks Report we launch every January, and it sort of sets the tone for Davos, for the Annual Meeting. What are you, Carolina, if you go first, what are you hoping to get out of the Annual Meeting and how do you hope it will sort of help set the agenda for the year ahead?

Carolina Klint: We're facing numerous interlinked crises and dealing with so many challenges. And my hope is really that we can move maybe from the friction that has been caused by recent geopolitical turbulence and really move towards more of a collaborative mindset in terms of how to address these, short-term, but definitely the longer-term risks where really there is very limited opportunity to do something individually about it. We need to come together to solve these challenges that we're facing. So improved collaboration, That would be my hope.

Gayle Markovitz: And Peter?

Peter Giger: Well, I think Carolina talked quite a bit about resilience. I think individual and collective resilience is a very important ingredient to master what's ahead of us. And I would really hope that people see I mean, every risk is an opportunity. And if the world is perfectly stable, nothing will ever grow.

So from a business perspective, a relatively volatile environment offers much more opportunity. That's the positive thing. And risk is not necessarily something bad, if properly managed. And so finding the right balance in in kind of building resilience, mitigating risks, but also tolerating risks as a business opportunity. And based on that individual and collective resilience, I think can help the world moving forward.

Now, part of that is a collective understanding, it's the collaboration that Carolina mentioned. If collectively people accept that there's a way forward I think it will lead to much better outcomes than if we try to do that individually all on our own.

Gayle Markovitz: Is there anything else that you'd want to say about the report? Anything that we haven't touched on?

Carolina Klint: The one thing that I could just point out is the fact that widespread cyber crime and cyber insecurity made its way into the top rankings again, both in the short and long-term view of risk. And I really cannot highlight enough the importance of keeping an eye on these aggressive and sophisticated cyber attacks because it is a persistent threat and it's also a strong driver of other risks. And of course, one of the reasons is that we have more exposure entry points than ever, given the speed of digitisation and how we automate processes and so on, so forth.

But also because advances in technology are allowing for the collection of more sensitive data. I mean, now we're looking at, you know, keystrokes and viral infections and facial recognition and other biometrics, and that opens up a completely new field where that kind of data can be the target of both geopolitical and commercial warfare. So I just want to make cyber - let's not forget about cyber.

Gayle Markovitz: And Peter, any final thoughts?

Peter Giger: As a risk officer, I'm always concerned about the things I don't think about. For every reader of the report, they should consider what is not in there that's relevant for them. Because you read the report, it makes perfect sense. It's very easy to kind of rush to conclusions without considering your specific situation. That's probably what I would recommend everyone reading it - think about the things that are not obvious. Because if you're unprepared, risks typically are worse if they materialise.

Gayle Markovitz: There is that saying that you should worry. You know, if you're worrying about something, you probably don't need to worry about it. And if you're not, you probably do.

Robin Pomeroy: Gayle Markovitz was speaking with Carolina Klint, Managing Director at Marsh, and Peter Giger, Group Chief Risk Officer at Zurich Insurance Group.

You can find the Global Risks Report at wef.ch/grr2023. And you can follow all the action at Davos at wef.ch/wef23 - and by subscribing to this podcast, Radio Davos, which will be going daily during the event.

And don’t miss our sister podcast, Meet the Leader - find that, and the World Economic Forum Book Club Podcast on your podcast app and at wef.ch/podcasts.

And join us on the World Economic Forum Podcast Club on Facebook.

This episode of Radio Davos was presented by me Robin Pomeroy, with reporting by Gayle Markovitz. Studio production was by Gareth Nolan.

We will be back very soon, but for now thanks to you for listening and goodbye.