1.Executive Summary: Towards a moresophisticated understanding of global risks
This document summarizes the output of aollaboration between the World Economic Forum,MMC (Marsh & McLennan Companies, Inc.), MerrillLynch and Swiss Re, in association with the RiskManagement and Decision Processes Center of theWharton School at the University of Pennsylvania, onthe topic of Global Risks. A longer documentontaining more information on the genesis of theWorld Economic Forum’s Global Risk Programme, onthe methodologies employed and detailing thecenaros constructe s avaae atwww.weforum.org. The purpose of this collaboration, building on workundertaken in 2004, was to:
enty an assess current an emergng goarisks in the 2006 and 2015 time horizons;
study the links between them and to assess theirlikely effect on different markets and industries; and
dvance the thinking around more effectivemitigation of global risks.
The global risk landscape
The 2006 risk landscape is dominated by high impactheadline risks, such as terrorism and an influenzapandemic, which top the global risk mitigation agendand are increasingly well understood. Other risks, likemate cange, wose cumuatve mpact w ony efelt over the longer term, have begun to move to theentre of the policy debate and may offer the greatesthallenges for global risk mitigation in the future.nay, we conser a numer o potenta rss woseutcomes are as yet very unclear, such as thosessociated with new technologies. These risks arethought about by few, but have the potential to behighly disruptive in the future. In many ways 2005 waswake-up call. What is needed now are positiveresponses, innovation and an understanding of potential business opportunities implicit in a rapidlyhanging environment.
mpacts can e greater tan te sum otheir parts
dentification of individual global risks, however, is onlyne part of the story. In reality, global risks rarelymanifest themselves in isolation. The combination of peed (the effects of global risks travel fast), theinterconnectivity of the global system as well as itsdeepening complexity can lead to rapid andunexpected contagion of global risks acrossindustries and geographical areas. The interplay of multiple global risks and their combined ripple effectscan create potentially disastrous “perfect storms” –cumulative events which cause damage far in excessof the sum of each individual risk event. In 2005,urricane Katrina provided a powerful example of conflation that will have long-term impacts. Avian flumay present similar global challenges, shouldwidespread human-to-human transmission occur.
Global solutions to global risks
nternationally collaborative approaches like thosecoordinated by the World Health Organization andpublic-private cooperation on global risk mitigationcan ep to mprove te way te wor eas wt rs.Similarly, there is scope for more widespread andeffective initiative by the private sector. Incentivesneed to be properly aligned to make risk mitigationas much about proactive prevention as about reactiverecovery.In some cases, as in the increasing contribution of business to disaster relief and the growth of innovative financial instruments to price risk, moresophisticated mitigation approaches are developing.owever, our collective ability to mitigate global risksis still seriously hampered by divergent perceptions of the nature and importance of such risks; differingagenas; an te naty o any government,business or international institution to address theserisks independently.
oong to a etter uture
The World Economic Forum’s Global Risk Programmehas identified three core areas where these problemscan be addressed and risk mitigation improved:enhancement of the quality of information on riskand its flow amongst stakeholders;reassessment of risk priorities and reallocation of resources and incentives accordingly; andstrengthening the capacity and resilience of business and political and administrative institutionsat all levels.o one can succeed alone in dealing effectively withglobal risks. An integrated multistakeholder approachoffers the best hope of increasing our capacity topre-empt, manage and mitigate global risks.
Global Risks 2006