World Economic Forum: Cost of living and climate vie to lead “polycrisis” era

The world economy will continue to be beset by a succession of crises, according to the World Economic Forum’s (WEF) annual study of competing threats, but of these, it is the cost of living that is uppermost in the short-term outlook.

There will be no return to a “new normal”, after the war in Ukraine and its geoeconomic consequences have scotched optimism that the economy would flourish following the worst of the Covid-19 pandemic, the report warned.

Instead, energy, food and cost-of-living crises dominate the immediate picture for 2023, amid what the report calls a “polycrisis” period, which the study warns is set to continue.

“We are facing an era of turbulence and polycrisis likely for some years to come,” warned Saadia Zahidi, managing director, WEF, speaking at the GRR press briefing in London.

The paramountcy of the cost-of-living crisis in the two-year view gives way to the environmental crisis when looking ahead for the next ten years, according to the WEF Global Risk Report (GRR).

Published on 11 January, the GRR is in its eighteenth edition. The annual study ranks competing threats with short- and long-term outlooks. At its core is a Global Risks Perception Survey, a risks poll of more than 1,300 people in leadership roles among the WEF’s stakeholder community across government, the private sector and academia.

After cost of living, natural disasters and extreme weather ranked second on the two-year outlook, followed by geoeconomic confrontation, failure to mitigate climate change, erosion of social cohesion, and societal polarisation.

For the coming decade, failure to mitigate climate change was top, followed by failure of climate change adaption, then natural disasters and extreme weather, biodiversity loss and ecosystem collapse, and large-scale involuntary migration – all elements of the environmental emergency.

“When we asked leaders what they expected to happen, well over 80% of them expect consistent ongoing crises compounding each other and increasing the volatile trajectory,” said Zahidi.

A number of “eerily familiar risks coming back to the fore” include world hunger, and food and energy crises, she noted.

Russia is a major producer of agricultural fertiliser and Ukraine is a leading grain producer. Therefore, food shortages stem, in large part, from trade disruption caused by Russia’s invasion of Ukraine and the Western sanctions imposed as a response.

Balancing short- and long-term risks poses a particular challenge, the report notes, with the most obvious example of using more dirty energy in response to immediate energy shortages, further imperilling net zero environmental commitments already in doubt.

“In Europe, for example, use of coal has risen,” said Carolina Klint, risk management leader, Continental Europe, Marsh, speaking at the GRR launch.

“It’s not about surviving the next winter; it’s about surviving the next five winters, extreme weather, summer droughts and heat waves. We need to remain committed to long-term climate initiatives.”

The world is making “a slower and more disorderly climate transition” than hoped, said John Scott, head of sustainability risk, Zurich Insurance Group, noting that the recent Cop-27 Climate Change Conference in Sharm el-Sheikh failed to agree on phasing out fossil fuels.

“We’re living in a world right now in which what is scientifically necessary and politically expedient do not match,” Scott warned. “Are hopes for a net zero future fading? Possibly, but the stakes are very high.

He noted that according to the UN’s report at Cop27, by the end of the decade, there is a 50% chance of the world breaching leaders’ previous commitment to limit the temperature rise to 1.5 degrees Celsius that was built into the Paris Agreement in 2015.

“Climate change is still an existential risk for our planet and will lead to greater shocks than we are experiencing today. The window for action is closing and the time for action is now,” Scott added.

Call for collaboration

The report calls for leaders to be forward-looking to focus on building resilience. To do this, speakers at the launch noted the need for greater collaboration efforts, to create clever uses of technology at scale and coordinate responses to mirror the connectedness of risks.

“There’s no such thing as 100% preparedness, but more foresight and more resilience are what is needed. We need a team sports mentality for many things,” said Zahidi.

The word ‘collaboration’ crops up nearly 30 times within the text of the report itself.

“There is an excellent opportunity for collaborative efforts and public private partnerships (PPPs),” said Klint.

The briefing made multiple mentions of PPPs as an avenue for greater collaboration between governmental and corporate entities to work together to mitigate or reduce risks and/or offset their consequences.

Technological innovation was a focus for optimism in the report, and was also emphasised at the briefing, offering opportunities to boost resilience against many of the risks.

“There are opportunities for technology platform providers and cloud internet providers, for example, to partner with insurance companies and governmental bodies to address emerging threats,” Klint said.

The report itself noted that PPPs “can help close key gaps in innovation, financing, governance and implementation of preparedness measures for emerging and well-established risks, such as food and water insecurity, weakened education and healthcare systems, and insufficient regulation of dual-use technologies, or addressing the looming insurance gap relating to cyberwarfare”.

Airmic will host a webinar on 1 February to discuss the content of the GRR. It will be led by Richard Smith-Bingham, executive director, Marsh McLennan Advantage, who was directly engaged in the production of the report.