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GLOBAL RISKS REPORT 2019Alex Wittenberg| Montreal
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RISK LANDSCAPE
Out of control…
A DEEPER LOOK
Multiconceptual world, human side of global risks, preparing for sea-level rise, biological risks
EVOLUTIONS AND EXTRAPOLATIONS
From infrastructure investing to AI capabilities; civil society erosion to food security challenges
RISK MANAGEMENT
offs, managing risks
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FRACTURES, DISCONNECTS AND FAILINGS
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ECO
NO
MIC
TEC
HN
OLO
GIC
AL
GEO
PO
LITI
CA
LSO
CIE
TAL
THE TIGHTENING QUEST FOR CONTROL
Major-power economic tensions
Major-power political tensions
Populist and nativist agendas
Cyber-attacks(operations/infra)
Erosion oftrade relations
Loss of confidence in security alliances
Cyber-attacks(theft of data/money)
Media echo chambers/ ‘fake news’
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RISE OF ‘HYBRID THREATS’GEO-ECONOMIC
Regulation
Competition
Supply chain
Operations
Workforce
Investment
Geoeconomic factors
Uncertain, nationalistic
Tariffs, local champions
Friction, reorientation
Asset security
Local promotion, unrest
Foreign ROI concerns, FX
Unknown, early-stage
FANGs, BATs and others
Transformation
Cyber, technology integration
Automation management
Technology ROI concerns
Geotechnological factors
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RISE OF ‘HYBRID RISKS’GEO-TECHNOLOGICAL
Regulation
Competition
Supply chain
Operations
Workforce
Investment
Geoeconomic factors
Uncertain, nationalistic
Tariffs, local champions
Friction, reorientation
Asset security
Local promotion, unrest
Foreign ROI concerns, FX
Unknown, early-stage
FANGs, BATs and others
Sanitization, transformation
Cyber, technology integration
Automation management
Technology ROI concerns
Geotechnological factors
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2019 GLOBAL GROWTH FORECAST
A POTENTIAL ECONOMIC DOWNTURN ON THE HORIZON
1
-5
-4
-3
-2
0
-1
2
Germany
Japan
Canada
France
Italy
UK
US
2016 20202017 2018 2019
G7 GOVERNMENT BUDGET DEFICIT
Limited fiscal firepower to combat potential an economic downturn
Source: IMF, WEO database April 2019, OECD
3.0%
3.5%
4.0%
4.5%
Q1/18 Q2/18 Q4/18Q3/18 Q1/19 Q3/19Q2/19
IMF
OECD
Global growth forecasts downgraded
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CYBER ATTACKS AND DATA FRAUD / THEFT DOMINATE BUSINESS LEADER IN NORTH AMERICA
Note: WEF Executive Opinion Survey (12,548 responses worldwide).
Economic Environmental Geopolitical Societal Technological
Top risks concerns in Canada
Large cyber attacks
Asset bubble
Energy price shock
Critical infrastructure failure
Top risks concerns in the US
Large cyber attacks
Data fraud or theft
Fiscal crisis
Weapons of mass destruction
Terrorist attack
Extreme weather events
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FORESTALLING INFRASTRUCTURE CRISES
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SIGNIFICANT GLOBAL INVESTMENT GAP
Investment Needby 2040
Current InvestmentTrend
$79 TN
$94 TN
By sector
RoadEnergyRailWaterTelecomAirportPort
By region
Americas
Asia
Europe
Africas
Oceania
Investment gap
Source: Global Infrastructure Hub estimation across 50 countries, which together constitute more than 85% of global GDP
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INFRASTRUCTURE GAP IN NORTH AMERICA AND CANADA
By sector
Road Energy
Rail Water
Telecom Airport
Port
Investment gap
Source: Global Infrastructure Hub for the Americas; The Canadian Chamber of Commerce
$50 – $570 BN
For Canada:
Of infrastructure deficit in 2013, depending on methodology used
2.9% of GDPOf annual investment just to maintain 2011 level infrastructure stock
Investment need by 2040
US
Canada
Current Investment
12.3 TN
8.5 TN
1.2 TN1.22 TN
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GROWING INFRASTRUCTURE CHALLENGES
Unsustainable pressure of use
Vulnerability to disasters
Rapid economic and population growth
New forms of infrastructure
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SOME DATA POINTS FOR CANADA…
Property & casualty insurance catastrophic loss From 1983-2018 in $ million(2017 dollar)$7.5 – $11 BN
Estimated annual total economic, social and health costs of congestion in Toronto alone
$15 BNEstimated direct annual costs of congestion for the Greater Toronto and Hamilton areas by 2031
Source: Infrastructure Canada; Insurance Bureau of Canada
0
1000
2000
3000
4000
5000
19
83
19
85
19
87
19
89
19
91
19
93
19
95
19
97
19
99
20
01
20
03
20
05
20
07
20
09
20
11
20
13
20
15
20
17
P&C Insurance loss
5 per. Mov. Avg. (P&C Insurance loss)
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THREE IMPERATIVES
Strengthen system resilience
Improve project bankability
Negotiate geopolitical realities
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CLIMATE CHANGE
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3.0
4.0
3.2
3.52.5 3.0
3.4
3.6
4.5
3.8
4.0
2.8
Terrorist attack
Failure of regional governance
Failure of major financial institution or mechanism
Failure of urban planning
Failure of national governance
Imp
act
Extreme weather
Asset bubble
Biodiversity lossCritical information systems failure
Infrastructure failure
Climate change adaption failure
Cyberattacks
Deflation
Interstate conflict
Energy price shock
Fiscal crises
Natural catastrophe
Food crises
Illicit trade
Infectious disease spread
Inflation
Man-made catastrophe
Social instability
Water crises
Consequences of technological advancement
Likelihood
Involuntary migration
Unemployment
WMD
Data fraud
State collapse
ENVIRONMENTAL RISKS DOMINANT ON A 10-YEAR OUTLOOK
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3.4 3.6 4.0 4.43.8 4.23.4
3.6
3.8
4.0
Water crises
Involuntary migration
Cyberattacks
Likelihood
Biodiversity loss
Imp
act
Climate change adaption failure
Man-made catastrophe
Natural catastrophe
Extreme weather
ENVIRONMENTAL RISKS DOMINANT ON A 10-YEAR OUTLOOK
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PROJECTED CHANGES IN CANADA’S CLIMATE
TEMPERATURE
Increase in overall as well as extreme
temperature, with warm spells and heatwaves
lasting longer
HYDROLOGICAL EVENTS
Increase in precipitation, more frequent heavy and
extreme events
SNOW AND FROST
Decrease in snow-covered and
ice-covered duration
RISING SEA LEVELS
Global sea level to rise from a few tens of
centimetres to more than a meter
Source: Council of Canadian Academies; ; The Expert Panel on Climate Change Risks and Adaptation Potential
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MORE FREQUENT EXTREME WEATHER EVENTS INFLICTING SIGNIFICANT LOSS TO INSURERS
0
1000
2000
3000
4000
5000
19
83
19
85
19
87
19
89
19
91
19
93
19
95
19
97
19
99
20
01
20
03
20
05
20
07
20
09
20
11
20
13
20
15
20
17
P&C Insurance loss
5 per. Mov. Avg. (P&C Insurance loss) Early-May windstorm affecting Ontario and Quebec
$410 million
Summer storms across the Prairies
$240 million
$295 millionOttawa-Gatineau tornadoes and windstorms in September
In 2018 alone:
Source: Insurance Bureau of Canada
Property & casualty insurance catastrophic loss From 1983-2018 in $ million(2017 dollar)
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AREAS OF PARTICULAR VULNERABILITY TO CLIMATE CHANGE IN CANADA
At the national level, climate change risks in the next 20 years are highest in the areas of physical infrastructure, coastal communities, northern communities, human health and wellness, ecosystems, and fisheries.
The Canada Expert Panel on Climate Change Risks and Adaptation Potential
“
”
Assessment of major areas of climate risks facing Canada
Source: Council of Canadian Academies; The Expert Panel on Climate Change Risks and Adaptation Potential
Panel assessment of consequences and likelihood for major areas of climate change riskThis figure represents the Panel's assessment of consequences (disruptions, damages, or loss in the next 20 years) and likelihood for major climate risk areas facing Canada. The smaller graph shows the ascribed results using the entire 0—100 scale for each axis, and the main graph provides a detailed view showing the relative positioning of these risks. The Panel was less confident in its relative rating of the Indigenous ways of life risk area, as there were no Indigenous members on the Panel and only limited inclusion of Indigenous knowledge in the assessment.
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STRATEGIES FOR RISK REDUCTION
Managed retreat
Relocation of populations and critical assets
Hard infrastructure
To keep water out, e.g.
• Sea walls
• Storm surge barriers
Soft infrastructure
For coastal resilience, e.g.
• Wetland conservation
• Beach nourishment
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HEADS AND HEARTS
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RISING ANXIETIES AND CONCERNS
Societal stressors
• Political uncertainty/ divisiveness
• Financial challenges
• Conflict and violence
• Isolation and loneliness
Workplace stressors
• Blurred line between work and life
• Automation concerns
• Increased monitoring
• Job insecurity
Technological stressors
• Digital addiction
• Replacement of relationships
• Fake news and echo chambers
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RISING ANXIETIES AND CONCERNS IN CANADA
1 in 5Canadians experienced a mental illness or addiction problem
$51 BNThe estimated annual economic burden of mental illness in Canada
Healthcare costs
Productivity loss
Reduction in quality of life
• Young people aged 15 to 24 more likely to experience mental illness
• Workers reported increased stress and isolation from lack of quality permanent, full-time jobs
Shaky employmentStudent debt
Housing price
Stress and isolation
Source: The Centre for Addiction and Mental Health
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IMPLICATIONS AND IMPERATIVES FOR FIRMS
“Human capital” risk
Workforce demographics
Workforce psychographics
Reskill or replace Enabling environment
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CONCLUDING REMARKS
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THE GLOBAL RISK LANDSCAPE IS DEFINED BY EMERGING RISKS
More consequential
Emerging
Reawakened
Evolving
Novel
Aggravated
Types
Spill-over consequences
Non-linear development
Near- or long-term impacts
Invisible, distinct tipping points
No certainty of crystallization
Combinatory force
Features
“Complex threats and uncertainties that may have significant, unexpected impacts on company earnings and market positioning”
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NURTURING CORPORATE VERSATILITY
Crisis preparedness playbook1
Broad-based resilience2
Strategic adaptation3
!
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IMPLICATIONS FOR THE BOARD – “ADAPTIVE GOVERNANCE”
Agenda space for discussing future risks
Active guidance on resiliency improvements
Board diversity and fit-for-purpose skills
Open, challenging and self-reflective culture
New thinking on corporate risk and resilience in the global economy
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