Clear and present dangers

Clear and present dangers

Businesses fear inaction over worsening climate change, cyber threats and other risks could derail their pandemic recovery

By Bernice Han

February 1 heralded the start of the Year of the Tiger, an animal symbolising strength and bravery. Australian business leaders – like their counterparts around the world – are going to need plenty of both in 2022.

With the pandemic entering its third year, the World Economic Forum’s (WEF) Global Risks Report finds the mood overwhelmingly downcast as the coronavirus shows no sign of going away.

The covid health crisis and its long-term side effects on the global economy are not the only issues preying on the minds of C-suite executives, according to the annual WEF report produced in collaboration with Marsh McLennan, Zurich and other partners.

Business leaders have told the researchers that damaging extreme weather events, climate change inaction, worsening cyber crime and other pressing problems pose grave threats to the world economy.

Released ahead of the virtual Davos summit in January, the report’s Global Risks Perception Survey brings together the views of more than 12,000 respondents.

Asked for their outlook for the world over the next three years, only 10.7% said they believe economic recovery will accelerate during the period. About 23% say they are “worried”, 61.2% describe themselves as “concerned” and only 15.8% feel “positive” or “optimistic”.

In Australia, business leaders say their top shortterm risk in the next two years is cyber security measures failing. This is followed by extreme weather events, climate action failure, infectious diseases and debt crises in large economies.

Globally, the top short-term risks over the next two years are extreme weather, livelihood crises, climate action failure, social cohesion erosion, infectious diseases, mental health deterioration, cyber security failure, debt crises, digital inequality and an asset bubble burst.

Scott Leney, the Head of Risk Management Marsh Asia & Pacific, tells Insurance News the “sombre” mood is “understandable given the disruption that business and society has encountered over the last two years and the ongoing fatigue about the pandemic’s future path”.

He says the next two years will be “primarily about resilience” as businesses look to navigate the challenging environment.

Tellingly on the climate change front, there are grave concerns that the world may fail to avert a catastrophe, resulting in knock-on effects on the environment over the next 10 years.

Climate action failure, extreme weather, human environmental damage and biodiversity loss are medium and long-term global risks, the report says, reflecting a widespread consensus that too little is being done to save the planet. About 77% of the WEF survey respondents said international efforts to mitigate climate change haven’t even started yet or are in “early development”.

A global risk is the possibility of the occurrence of an event or condition that, if it occurs, could cause significant negative impact for several countries or industries.

“The climate crisis remains the biggest long-term threat facing humanity,” Zurich’s Group Chief Risk Officer Peter Giger says in the report.

“Failure to act on climate change could shrink global [gross domestic product] by one-sixth and the commitments taken at COP26 [the United Nations-led climate change conference held in Glasgow last year] are still not enough to achieve the 1.5-degree goal.

Striking a hopeful note, Mr Giger says it’s “not too late for governments and businesses to act on the risks they face and to drive an innovative, determined and inclusive transition that protects economies and people”.

The Global Risks Report says accelerating and widespread climate change manifests itself in irreversible consequences.

“Without stronger action, global capacity to mitigate and adapt will be diminished, eventually leading to a ‘too little, too late’ situation and ultimately a ‘hothouse world scenario’ with runaway climate change that makes the world all but uninhabitable.”

In the meantime, efforts to progress the green transition are being disrupted by covid economic recovery measures that mostly favour short-term stability at the expense of sustainable decarbonisation initiatives.

The report points out that some “business actors” have continued efforts to slow the green transition away from carbon-based energy.

“Climate-sceptic lobbying, ‘greenwashing’ [falsely claiming climate-unfriendly products are environmentally sound] and sowing misinformation and distrust about climate science remain pervasive in many countries,” the report said.

Cybercrime, already a big problem before covid, ballooned into an even bigger one during the pandemic in the past two years, the report says.

In 2020 alone, malware and ransomware attacks increased 358% and 435% respectively as cyber robbers pounced on the business community’s overnight shift to remote working when the pandemic broke out.

While the “digital is everything” mindset has proved crucial for businesses because it allowed them to continue operating smoothly during long months of pandemic lockdowns, the dependence on technology has also come at a high price: worsening cyber attacks.

Not only have breaches surged sharply, so have the tactics used by cyber criminals to hold hacked businesses hostage for ransom payments. The report says attacks themselves are also becoming more aggressive and widespread.

Insurers have already responded to the deteriorating cyber landscape. In the US, the largest cyber market, insurance pricing rose 96% in the third quarter of last year, marking the most significant increase since 2015 and a 204% year-over-year increase.

And it could become even more costly to acquire cyber protection. Businesses fear they are playing catchup to the cyber criminals. Lower barriers to entry for cyber-threat actors, more aggressive attack methods, a dearth of cybersecurity professionals and patchwork governance mechanisms are all aggravating the risk.

“Cyber risk is ubiquitous and cyber cecurity is not set and forget,” Mr Leney tells Insurance News. “The constant game of cat and mouse between the [chief information security officer] and cyber criminals is growing exponentially.

“The cyber security of organisations’ needs constant review and updating in order to keep them working effectively and efficiently.”

In this the Year of the Tiger, businesses will indeed need to draw on every ounce of strength and bravery to overcome the risks that threaten to throw them off course.