Global Risks Report: risk and opportunity

Recording date: 01/24/24
Air date: 02/14/24

The 19th edition of the World Economic Forum’s Global Risks Report came out in January, highlighting various emerging and longstanding risks. John Scott, Head of Sustainability Risk at Zurich Insurance Group, addresses the reigning top long-term risk of extreme weather as we continue to witness its widespread impact worldwide. Scott also delves into the influence of AI and its role in creating a new top-ranked short-term risk of misinformation and disinformation. Listen as Scott offers his expertise as one of the contributors to the Global Risks Report, provides insights into the findings of this annual resource, and sheds light on the opportunities that can arise from addressing these risks.

Guest

John Scott
Head of Sustainability Risk
Zurich Insurance Group

John Scott is Head of Sustainability Risk for the Zurich Insurance Group. He joined Zurich in 2001 becoming Head of Risk Insight in 2007 and was Chief Risk Officer for Zurich’s Global Corporate and Commercial Insurance businesses from 2009 to 2017. He took on his current role in 2018. John leads the Group’s engagement on sustainability risk, both internally and externally as the way Zurich delivers its purpose and values.

John is on the Advisory Board of the World Economic Forum’s (WEF) Global Risks Report and has contributed to every report since 2005. He is also on the WEF Advisory Board for the Energy Transition Initiative and the IEA (International Energy Agency) Finance Institution Advisory Board, fostering a dialogue between the IEA and the finance community on clean energy transitions.

Host

David Hilgen
Future of Risk podcast co-host
Editorial Content Manager

Episode Transcript

DAVID HILGEN: The World Economic Forum's Global Risks Report 2024 is out and this year's edition provides a typically negative outlook on worldwide risk. But according to John Scott, Head of Sustainability Risk for Zurich Insurance Group, the new emerging and longstanding risks identified in the report also provide opportunities. There's a new top concern among the short-term risks and the long-term threats are once again dominated by environmental concerns. Misinformation and disinformation were ranked as the risks most likely to have an impact on the world in the next two years. Extreme weather events is the number two risk over a two-year timeframe and tops the list of risks over a 10-year period.

Welcome to Future of Risk, presented by Zurich North America. We explore the changing risk and resilience landscape and share insights on the challenges facing businesses to help you meet tomorrow prepared. I'm David Hilgen. Our guest on the podcast is John Scott, who is also one of the contributors to the annual report which is produced in collaboration with Zurich and Marsh McLennan. John, welcome to the podcast.

JOHN SCOTT: Hi, David. Nice to be on the show.

HILGEN: I mentioned, John, that the number one short-term risk this year was misinformation and disinformation, making its debut at the top spot. Were you surprised by this?

SCOTT: Yes, it's the first time we've had that risk in the Global Risks Report. So, it was kind of surprising. But actually, in a way, not surprising given what we know about this year being a year of elections and with the oncoming threat of easily available artificial intelligence, generative AI tools. Then, all of a sudden, it doesn't become such a surprise.

HILGEN: I want to dig a little deeper in that. You mentioned artificial intelligence or AI. It's been one of the biggest topics for the past year-plus. What role does AI have in the rising concerns over misinformation and disinformation?

SCOTT: Well look, for centuries humans have tried to influence other humans and we're very familiar with the concepts of propaganda. I think what's different over the last year — and you’d have to be a hermit living on the top of a mountain not to know — [is] that generative AI is the latest news in the last 12 months. I mean, it's an incredibly powerful and easy-to-use tool set. But, we all know also that tool set can be used to manipulate news. We can create deep fake videos; we can create fake information. Of course, we're all very susceptible to that in a world of social media use where it's difficult to discern what truth really is.

HILGEN: Interesting. So, I want to talk about the extreme weather events. It held the top spot, among long-term risks followed by three other environmental risks in the top five. Why do you think weather and climate risks continue to lead the list of long-term risks.

SCOTT: Well, I think it's super interesting about weather because extreme weather risk is the number one risk this year in the view of the respondents to the survey. As you said, it's the number two risk in the two-year timeframe and the number one risk in the top 10 years. So, if you take that all together, everyone's worried about extreme weather and who wouldn't be? I mean, think back over the last 12 months. I mean, there've been floods, there've been periods of extreme heat and wildfires; really, really extreme weather. And in part we think — the scientists think — that's anthropogenic human influence; climate change; gradual warming. It's the warmest year on record. But in part, it's also due to the El Niño effect of the ENSO [El Niño- Southern Oscillation]. So, it's a bit difficult to discern why it is, but it's really obvious to us what the outcomes are and how we have to adapt it.

HILGEN: Interesting. So, what else? You've looked at this report; you actually contributed to it. What else stood out to you from the results of the Global Risks Perception Survey?

SCOTT: Well, I think the world's risk landscape is in flux and we live in a quite a fragmented world. In fact, the cover of the Global Risks Report — actually a lot of people ask me, “what is the cover?” It's actually a set of ice flows from an ice sheet that's breaking up. I think that that [cover photo] describes the world really well because we know these global risks exist. We've been tracking them for quite some time now.

This is the 19th edition of the Global Risks Report, but actually in the last four years, and particularly in the last year, I think what we're seeing is kind of like a lot of movement. There are some events that have been happening and some of those are to do with these technology risks like artificial intelligence or the easy access to, at least, generative AI. This risk about misinformation and disinformation in this year of elections. Three billion people globally going to the polls in a range of different democracies. We've got these risks around environmentally related risks over the long-time horizon. And these are all things that are playing out in the risk landscape. So, it kind of feels like many of the risks that we have been concerned about for quite some times are actually moving. We see that not least, in actually some of the conflicts that have manifested obviously Ukraine, but also in Gaza.

HILGEN: I imagine if the survey had been done a little bit later — I think it was done in September — you might see interstate conflict rise even higher on the list.

SCOTT: Yes, I think so. It's already number five over the next two years, so people are very sensitive to it. If we think about the geopolitical situation and the geo-strategic position around the world. I think, again, this kind of concept of things being frozen for a while … there are some conflicts that, quite frankly, people have been wondering whether they're going to set off and now actually after the events in the Middle East, we're wondering whether other areas might heat up.

HILGEN: Well, by the way, I want to thank you for identifying the image on the cover. I didn't know what it was myself, I thought it was either a stone wall or maybe the ice wall in the “Game of Thrones” series, but now I'll look at it differently. I know what it is.

SCOTT: No, that's right. I mean, a lot of people have that misconception. In fact, I often ask audiences to tell me and vote and tell me how many of them know what it is. Very few people get it right.

HILGEN: Interesting. I want talk about the economic concerns. They also play a big part in this year's report, including cost-of-living crisis, inflation, economic downturn. Economists have been warning of a pending recession in 2024, but it's beginning to look like we may be making a soft landing as inflation rates cool. Can you explain what happened and can business leaders relax now and breathe a sigh of relief?

SCOTT: I'd love to say, “We can all breathe a sigh of relief.” That's not how it works with global risks. I think “keep on your toes and stay agile” is the answer. I mean, all through last year economists were saying, "Look, it's obvious, isn't it?" There's been an increase in energy costs. There's been a cost-of-living crisis. There's been general inflation and so there’s been levels of inflation in the G7 nations we haven't seen since the '70s. And there's a response. Central banks were increasing interest rates. And again, that's a massive change after the last 14 or 15 years of effectively free money with ultra-loose monetary policies everywhere after the Great Financial Crisis in 2008.

The world looks like a totally different place and it doesn't take much of a follow on logic to say, “Well, look, we've got indebted companies. We've got private individuals indebted.” If they suddenly have to pay more for that debt, then all of a sudden that affects consumer demand. It affects the abilities of companies to pay their debts and then suddenly we're into a financial market downturn and then a recession. The reality is, as you say, there's been a “soft landing,” especially in the United States. I think that speaks volumes about the quick response of the Fed [Federal Reserve System] and other central banks around the world, especially in the G7 nations, to tame the immediate inflation risk. It's still there, because there's you just need an uptick in global energy costs and that affects inflation, definitely. But I think the other thing is there's quite a lot of resilience in the economy, especially the U.S. economy.

You think about the tight employment market, and you think actually about some of the factors like corporate bonds with companies [that] have been preparing for this; they've been issuing bonds of a much longer time … a long tenor. So, they've actually managed to lock in some of the low interest rates for longer. So, I think, we should keep on our toes, as I say, but watch out. I mean, in places like Europe, for example, we're seeing Germany with reduction in growth, in fact sort of negative growth, just recently. And then, we've seen even in the S&P 500. If you take out the top seven tech stocks, actually in the last year there's been an 8% reduction in growth in the return from the S&P 500. And historically the price equity ratios are incredibly high. So, we're not out of the woods. So, pay attention.

HILGEN: Well, thanks for that. I mentioned at the beginning you've spoken about how the risks identified in the Global Risks Report also provide opportunities. What do you mean by that?

SCOTT: Oh, well, I think that's super-interesting. I mean, it's very easy to read something like any risk report and come away feeling mildly depressed. These are big issues. They're challenging issues, but it depends on your perspective. I think here about some of the structural forces that we use to describe what drives the trends, that kind of drive how some of these global risks develop. And one of them is the sort of demographic shifts we're seeing. Obviously, there are many countries — especially in the northern hemisphere; developed nations — where there are aging populations. They've got very big challenges in the economy because [there’s] not enough people to work in the economy and challenges with old age care provision, and healthcare provision is extremely expensive — public health and private health.

So, those are massive challenges. This all looks kind of a bit dystopian if you look at it from that perspective. But if you're in the global South, you're thinking, "Gosh!" You know, places like Africa with high population growth rates, a lot of well-educated young people with aspirations, and they're kind of looking at these challenges for the global North as opportunities. And of course, that raises all sorts of interesting questions about migration. But look at the United States over the last 200 years. A country built on migration initially from Europe and more recently from Asia and Latin America. But, I mean, what a fantastically powerful economy and society that's been. We have to manage the thinking about migration. And as I say, [it] depends on your perspective. [For] some people, this is a great opportunity. For some people, it isn't.

HILGEN: I think it is important to look at the risks and then not get depressed about it and think about [how] there are opportunities here and you can't ignore the risks.

SCOTT: I think the other piece about the opportunities is how do you address them? I mean, traditionally we'd have looked at the world and gone, “Oh, well, we do this all through multilateral agreements … international agreements.” We used to live in that kind of world. We don't live in that kind of world anymore. Organizations like the World Trade Organization are no longer as effective as they were. We live in a multipolar world where agreements at a global level don't either happen or they're not effective. But I think the reality is, when we look at global risks, an awful lot of global risks are managed at a local level. In my industry, the insurance industry, we deal with a lot of risks at a local level. We pay out claims at a local level. So, if you think of something like flood, for example, you don't solve the problems of flood around the world by making some big global agreement. You do it at an intensely local level.

So, I think there are real opportunities, and I think [there are] individual actions of individual citizens. It was New Year's just recently. I'm sure all of you have had your own New Year's resolutions; maybe changing your diet, buying an electric vehicle or maybe travel less to reduce your carbon footprint. An insignificant impact on your own. But if lots of people do that, the collective action is huge and the impact is big. So, there's lots of ways of doing it: local strategies, collective actions of individuals, breakthrough endeavors. Look at that amazing vaccine development pace that, happened during the COVID-19 pandemic — amazing collaboration between governments and the private sector to develop these things in record time and cross-border collaboration. It still works. It still can work. And for some global risks, it's really important. So, things like strategic arms limitation treaties to manage the risk of weapons of mass destruction — that's the proliferation of those weapons — then that's really important to reinvigorate and make those things work.

HILGEN: Well, I feel better already. It's nice to end on a positive note, John. I want to thank you for joining us on this Future of Risk podcast and sharing your valuable insights on the Global Risks Report.

SCOTT: You're very welcome.

HILGEN: Thanks to our listeners. This has been Future of Risk presented by Zurich North America. If you like the show, leave a comment or review wherever you get your favorite podcasts, or drop us a note at media@zurichna.com. We hope you join us for future episodes.