Guest Post by James Kline (first posted on CERM ® RISK INSIGHTS – reposted here with permission)
The 2022 Global Risk Report is the 17th risk assessment report. The preface to the report notes: “The 17th edition of the Global Risk Report identifies tensions that will results from diverging trajectories and approaches within and between countries and then examines the risk that could arise from such tensions.” (1)
The results of the survey have substantive implications as the above notes. These implications go beyond diverging trajectories and approaches, to something more fundamental. That is whether the survey has any probative value. This piece discusses the results of the survey. It also examines its probative value.
Survey Results
The survey asks respondents to rank a list of risk factors. These factors are placed into five categories. The categories are Economic, Environmental, Geopolitical, Societal and Technological. In addition, respondents are asked to evaluate the top risks for the next two years, three to five years and five to ten years. Tables 1, 2 and 3 shows the 2022 rank of the top ten risks for each of these times.
Tables 1, 2 and 3 show the risk priority based on the survey results. Overall, the results indicate that environmental concerns dominate the risk rankings. Half of the short-term and long -term risks are environmental. Four of the ten medium term risks are environmental. Thus, the focus of the movers and shakers of the World Economic Forum is on the environment and environmental risks. Infectious Disease (COVID) is still considered a short-term risk. But is not seen as a midterm and long-term risk. Technological risks, risks which have the most localized impact on and organization, are few. Cyber-attacks are not considered a top ten short-term risk. It is ranked low, eighth, in the mid-term risk category. It does not appear in the long-term risks. Instead, Adverse Tech Advances is the long-term technology risk. Adverse Tech Advances is a broad almost nebulous risk. Except for cyber-attack risks which each organization must address according to its specific set of circumstances, the risks listed in each table are broader in scope. They are not specific to any organizational activity.
Issues
In CERM Risk Insights #240, I reviewed the results of the 2019 World Economic Forum Risk Assessment. In the conclusion I made several observations which are still relevant. “The list of risks identified by The World Economic Forum is a key indicator that risk management is an important issue. The risks listed in the forum’s risk survey are those identified by the captains of global industry. This gives those risks a higher profile. However, a historical analysis shows that the types of risks given high profile change over time. It also shows that, while the number of top five risks over the last three years has been consistent, their impact continues to be substantive. In the cases of environmental risks, the organizations have little or no control over the mitigative efforts. Where the organizations have considerable control, mitigative efforts may be difficult to implement.”
Except for the consistency in the risks appearing one year over the next short term, the conclusion is right on. Environmental risks are difficult to mitigate. This is particularly so when there is a lack of consistency in emphasis over the long run.
The failure of consistency can be seen in the right-hand column in each table. In each instance, the number of risks cited in 2021 for each period changed. That rank order changes occur is expected because circumstance change. However, only five short term risk appear from 2021 to 2022. One would expect a higher percentage from one year to the next given the risks are identified as immediate. The risks identified in 2021 for the intermediate and long term are also considerable different. In each case, only three 2021 risks appear in 2022.
This lack of consistency in risk emphasis, even immediate risk, raises concerns about the long-term probative value of the results. But for the short term, the survey can be of value in that it indicates the mindset of the movers and industrial shakers worldwide. In this case, it clearly indicates an increased emphasis on environmental risks.
While governments play a much greater role in dealing with environmental risks, companies can act on their own. This action is twofold. The first is to implement Enterprise Risk Management (ERM). ERM can help management identify risks across the organization which may adversely impact operations. This includes environmental risks. The second action is to identify actions the organization can take to help mitigate climate change and other geographically broader risks.
As I pointed out in CERM Insights 354, neither ISO 31000:2018 or 9001:2015 have an environmental risk emphasis. The increased emphasis on environmental risks by the CEOs of major corporations means their organizations will be pushed to COSO ERM ESG.
Conclusion
The results of the 2022 Global Risk Report indicates the global elite have switched their focus to environmental related risks. This shift has significant implications. The most important implication is that neither ISO 9001:2015 and 31000:2018 have environmental risks incorporated into the models. This puts them at a disadvantage compared to COSO ERM ESG. A diminishing of the relevance of either ISO 31000:2018 and ISO 9001:2015 could adversely impact ISO and the quality profession more generally.
The extent of a move toward COSO ERM ESG will depend upon the pressure the CEOs place on their administrative staff. However, the lack of consistency in the risks included from one year to the next raises questions about the probative value of the Global Risk Report. That risks move in ranking within a category is expected in a volatile environment. However, the lack of consistency creates ambiguity and uncertainty about the which environmental risk will be prioritized and the extent of mitigative actions that will be taken.
Endnotes
- World Economic Forum, 2022, The Global Risks Report 2022, 17th Edition, page 5, https://www.weforum.org/reports/global-risks-re[prt-2022.
Bio:
James J. Kline has a PhD from Portland State University. He has worked for federal, state, and local government. He has consulted on economic, quality and workforce development issues. He has authored numerous articles on quality and risk management. His book “Enterprise Risk Management in Government: Implementing ISO 31000:2018” is available on Amazon. He can be contacted on LinkedIn or jamesjk1236@outlook.com
I am sorry to see that “adverse tech advances” will have no effects until 5-10 years. I’ll probably be dead. Too bad, because reliability and epidemic survival analyses could be done now with available data requires by GAAP. Reliability and epidemic costs of climate change should motivate action.
You’re right. Reliability and epidemic costs of climate climate change costs will require infrastructure investment that we are not ready for. Just look at california right now with its rivers of rain.