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Risk in Context

Global Risks report highlights geopolitical and technological risks

POSTED BY John Drzik Mittwoch, 11 Januar 2017

Today’s business leaders face new threats but can find new opportunities in a changing global risk landscape.

The just-released 12th edition of the Global Risks Report, prepared by the World Economic Forum with the support of Marsh & McLennan Companies and others, points to the need for businesses to understand and plan for an array of risks that are emerging in a context of rising geopolitical tensions, deepening societal polarization, and rapid technological change. The report also explores interconnections among risks. Social instability was at the center of the risk web:

Social and Political Challenges

Across the globe, people are sending a clear message to political leaders: They feel let down and they want change. Voters in advanced economies have rejected the political establishment and the status quo – most notably in the UK Brexit vote and the US presidential election. Anti-establishment sentiment is also reverberating across the Eurozone, where populist movements are gaining momentum.

Citizens have also taken to the streets in large numbers. In France, strikers have disrupted fuel supplies. In Germany, policies to accommodate refugees have been a lightning rod for broader frustration. In countries such as Brazil and South Korea, corruption exposures have led to impeachment of their leaders. Societies are increasingly polarized, and the stress on established democratic norms is escalating.

Surges in social and political instability have the potential to spawn a range of disruptions to business activity, from civil disturbance and terrorist attacks to government policy reversals and regime change. As a corollary, companies may more easily find themselves on the wrong side of volatile social, political, and environmental issues.

The Fourth Industrial Revolution (4IR)

Technology will continue to play a vital role in promoting global prosperity, but the pace of innovation is also creating new risks.

As artificial intelligence (AI) applications and Internet of Things (IoT) devices are deployed to improve productivity or increase safety, new cyber exposures are created and need to be managed. AI and robotics have the potential to take jobs away from workers. At a time of significant unemployment and growing social instability among lower-income groups, companies may experience pressure to align automation strategies with what is deemed politically and publicly acceptable.

The AI field is also fraught with other complications – for example, new liabilities (from self-driving cars, drones, etc.) where legal precedent is embryonic at best. Development in risk governance for AI in parallel with its commercial deployment is critical to ensure that risk/reward tradeoffs are clear for businesses.

Implications for Business

To thrive in such challenging times, businesses need to think creatively about scenario planning, including second- and third-order consequences. Companies can then stress-test supply chain approaches and investment decisions while evaluating potential changes to business and risk management strategy. The pace and scope of technology deployment will also be another critical issue to get right, and may require an injection of new talent.

We live in a time of high risk, but also of great reward. Every challenge will need an innovative solution; while new policies may close some doors, they will inevitably open others. With a careful eye on emerging global risks, companies can thrive in this volatile environment.