Global Risks to the BusinessEnvironment

Aproject of the World Economic Forumin collaboration withMerrill Lynch

January 2005

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1Global Risks to the Business Environment

This paper, the output of two workshops organized by theWorld Economic Forum in collaboration with Merrill Lynch,reviews major, global risks facing business leaders today,and examines how those risks differ from the challengesof the past. Some key points:

1) Global Risks and Business

– At a time when risksnot specific to business are having an unprecedentedeffect on the corporate world, it is crucial for businessleaders to understand the environment in which theirbusiness operates, in order to survive, remaincompetitive and grasp opportunities.

2)An Increasingly Turbulent and Complex World

– Today’s risks are much more interconnected than inthe past. They are much more volatile and can disruptmarkets throughout the world with almostinstantaneous precision. Such risks can be difficult toanticipate and respond to, even for the most seasonedbusiness leaders.

3)The Global Risks

– We identify 36 “global” risks,classified into four categories: economic, geopolitical,societal and environmental. This report details theprevailing consensus reached at our workshopdiscussions as to the ten risks most likely to have amajor or extreme impact on business:•Instability in Iraq•Terrorism•Emerging fiscal crises•Disruption in oil supplies•Radical Islam•Sudden decline in China’s growth•Pandemics – infectious diseases•Climate change•Weapons of mass destruction (WMD)•Unrestrained migration and related tensions

4)Risk Mapping - Connecting the “Dots” andSpotting the Patterns

– In an interconnected world,global risks should not be considered on a stand-alonebasis; it is important to understand how they cantrigger, amplify or buffer one another.

5)Dealing with Global Risks

– Seldom can global risksbe addressed by a single business entity, industry orcountry, and many institutional mechanisms areproving fairly ineffectual as they struggle to cope withthe challenge. There is also a large discrepancybetween the immediate time horizon employed bymost business and political leaders and the long-termapproach required to tackle risks on a global scale. Asa result, our capacity to address risk is jeopardized; amyopic tendency – or worse: denial – prevails. Finally,of equal concern is the problem that some major risksare being passed on to those least able to solve them– or with least responsibility for creating them.