GlobalRisks2009 - World Economic Forum · ThisworkwaspreparedbytheGlobalRiskNetworkoftheWorldEconomicForum. World Economic Forum 91-93routedelaCapite CH-1223Cologny/Geneva Switzerland

World Economic ForumJanuary 2009

Global Risks 2009A Global Risk Network Report

COMMITTED TO IMPROVING THE STATE

OF THE WORLD

A World Economic Forum Reportin collaboration withCitigroupMarsh & McLennan Companies (MMC)Swiss ReWharton School Risk CenterZurich Financial Services

This work was prepared by the Global Risk Network of the World Economic Forum.

World Economic Forum91-93 route de la CapiteCH-1223 Cologny/GenevaSwitzerlandTel.: +41 (0)22 869 1212Fax: +41 (0)22 786 2744E-mail: [email protected]

© 2009 World Economic ForumAll rights reserved.No part of this publication may be reproduced or transmittedin any form or by any means, including photocopying and recording, or by anyinformation storage and retrieval system.

ISBN: 92-95044-15-0978-92-95044-15-9REF: 060109

The information in this report, or on which this report is based, has been obtained from sources that the authors believe tobe reliable and accurate. However, it has not been independently verified and no representation or warranty, express orimplied, is made as to the accuracy or completeness of any information obtained from third parties. In addition, thestatements in this report may provide current expectations of future events based on certain assumptions and include anystatement that does not directly relate to a historical fact or a current fact. These statements involve known and unknownrisks, uncertainties and other factors which are not exhaustive. The companies contributing to this report operate in acontinually changing environment and new risks emerge continually. Readers are cautioned not to place undue reliance onthese statements. The companies contributing to this report undertake no obligation to publicly revise or update anystatements, whether as a result of new information, future events or otherwise and they shall in no event be liable for anyloss or damage arising in connection with the use of the information in this report.

Figure 1: Global Risks Landscape 2009: Likelihood with Severity by Economic Loss

Likelihood

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$)

Based on an the assessment of risks over a 10 year time horizon by the Global Risk Network

Key: Boxes indicate change since last year’s assessment

New risk for 2009

DecreasedIncreased

Stable Likelihood Severity

34

36

35

29

30

31

32

33

20

21

22

23

24

25

26

27 28 12

13

14

15

16

1718

19

11

1

3

4

5

89

10

2 67

Source: World Economic Forum 2009

ECONOMIC1 Food price volatility2 Oil and gas price spike3 Major fall in US$4 Slowing Chinese economy (6%)5 Fiscal crises6 Asset price collapse7 Retrenchment from globalization (developed)8 Retrenchment from globalization (emerging)9 Regulation cost10 Underinvestment in infrastructure

GEOPOLITICAL11 International terrorism12 Collapse of NPT13 US/Iran conflict14 US/DPRK conflict15 Afghanistan instability16 Transnational crime and corruption17 Israel-Palestine conflict18 Violence in Iraq19 Global governance gaps

ENVIRONMENTAL20 Extreme climate change related weather21 Droughts and desertification22 Loss of freshwater23 NatCat: Cyclone24 NatCat: Earthquake25 NatCat: Inland flooding26 NatCat: Coastal flooding27 Air pollution28 Biodiversity loss

SOCIETAL29 Pandemic30 Infectious disease31 Chronic disease32 Liability regimes33 Migration

TECHNOLOGICAL34 CII breakdown35 Emergence of nanotechnology risks36 Data fraud/loss

3 | Global Risks 2009

Preface 4

Executive Summary 5

1. The Global Risks Landscape 2009 6

2. The Financial Crisis and Global Risks 9

3. Resource Challenges, Sustainability and Competition 16

4. Global Governance: a Key to Global Stability and Sustainability 21

Appendix 1: The Risk Assessment and Risk Barometer 27

Appendix 2: Global Risks Report: Process and Definition 32

Contributors and Acknowledgements 33

Contents

Preface


2009 will be a year of learning the lessons of the financialcrisis; a year where its reach in terms of time and scopebecomes more evident; a year that calls for a newfinancial architecture to be shaped. At the same time, itwill be a year that will test the resolve and willingness ofworld leaders to collaborate and take action to movebeyond this crisis. The global risks landscape is acrowded one and the window of opportunity we have toaddress some of the largest challenges of our time isnarrow.

Global Risks 2009 looks at the risks, economic and other,that could emerge as the financial crisis continues tounfold. The report considers the implications of a suddendrop in China’s growth to 6% or below; deterioratingfiscal positions; and further asset price falls. Given thevulnerable state of the global economy, and asdeleveraging continues across the financial system,further shocks could have severe and far-reachingconsequences. The degree to which the world has lostconfidence in its institutions and systems is serious.Without confidence we could face a protracted andpotentially calamitous, downward spiral. Governments,central banks and regulators must avert this but mustalso avoid inadvertently sowing the seeds of future crises.They need to restore confidence at all levels; toconsumers and house-owners, to investors, and in andamong financial institutions. This crisis exposed theweaknesses of governance systems. Good governanceand leadership will help rebuild confidence, enablealignment across regions and industries, and encouragecollaboration.

With world attention focused on the immediate economicchallenges, this report also warns against losing sight of

longer term risks. Now is the time for leaders to lookahead. Risks related to climate change, unresolvedresource issues and potentially more defensive andprotectionist stances by states could lead to a conflationof these global risks with significant societal andeconomic costs. Again, better governance at corporate,country and global level is necessary to provide theframeworks for stable international relations, and forstates and corporations to create greater certainty andtrust. Successful mitigation of global risks will only bepossible once confidence in global governanceinstitutions is restored, starting by ensuring that they areadapted to today’s challenges and revising their mandateand powers accordingly. They must be able to function ina proactive and coordinated fashion, fosteringcooperation across all regions, industries and stakeholdergroups.

Global Risks 2009 builds on the insight and experience ofthe Forum’s unparalleled network of political and businessleaders, experts and academics. We are grateful for thecontinued commitment of our partners on this report:Citigroup, Marsh & McLennan Companies (MMC), SwissRe, The Wharton School Risk Center and Zurich FinancialServices. This report takes a long-term approach to risk,looking ten years ahead, while not forgetting thatdecision-makers must respond to the crisis today withthe consequences that carries for their countries andenterprises. Above all, Global Risks 2009 provides aframework for leaders to think about risk and how therisks that they face in the short term in their region andbusiness link to the longer term risks, with globalimplications. While the mitigation of the risks consideredhere will demand leadership, commitment and resourcesacross all stakeholder groups, they may also yieldopportunities and strengthen the ties between differentparts of the world. 2008 has proven the extent to whichthe world is subject to global risks; let 2009 be the yearwhere the world finds a common agenda to beginmitigating their impact.

Klaus SchwabFounder and Executive ChairmanWorld Economic Forum

Executive Summary


2008 was an historic year. Financial disruptions triggeredby declining house prices in the US grew into a globalcredit crisis of systemic proportions. By the second halfof the year, most advanced economies had entered arecession. The downturn spilled over into emergingmarkets, increasing the likelihood of a global contractionin 2009. Although the world has seen several financialcrises, this one differs in two respects. First, it hasdemonstrated just how tightly interconnectedglobalization has made the world and its systems.Second, this crisis was driven by developed economiesusing unprecedented levels of debt and leveragethroughout the financial system. Thus, risks that hadbeen identified in the past two editions of this report – therisk of a global meltdown in asset prices (2007) and thewidespread mispricing of risk and the potentialimplications of systemic financial risk (2008) – havematerialized with huge consequences.

The focus of the reportThis year’s report focuses on the effects of the globalfinancial crisis and its implications for those risks thatcame to the fore of the Global Risk Network assessmentfor 2009. They include: a sudden further drop in China’sgrowth to 6% or below; deteriorating fiscal positions;further asset price falls; increasing resource-related risksdue to climate change; and the failure of globalgovernance to mitigate global risks. The highlyinterconnected nature of these risks means that theirimpact is truly global. The economic outlook for 2009 is agrim one for most economies; markets remain volatile,liquidity has not returned, unemployment is rising, andconsumer and business confidence has fallen to recordlows. In this climate, risks become even more potent intheir impact and, as discussed in previous reports, thetendency towards panic and short-term responses aremore pronounced. This report explores the dangers ofmanaging out of this crisis, without considering thebroader, long-term consequences of today’s decisions. Italso stresses the need for a determined, global focus onbalancing the response to the immediate challenges witha concerted effort to mitigate longer term risks, not leastthose relating to climate change and resources.

The report also considers the impact of the financial crisisand economic environment on a few risks introduced forthe first time in 2008 and others that the Global RiskNetwork has tracked for several years. Many of these are

particularly pertinent to the current environment. Linkingto the discussion on the response to the financial crisis,the risk of over-regulation and lack of a coordinatedapproach to regulation at a global level makes its firstappearance in the assessment. The same is true ofunderinvestment in infrastructure, a risk that is highlyinterconnected with a number of economic,environmental and societal risks. In terms of botheconomic impact and loss of life, health risks, includingchronic and infectious diseases, as well as the ongoingrisk of a major pandemic, continue to dominate.Conflicts, in particular intra-state conflict, and terrorismcontinue to mar the lives of millions worldwide and theireffects reach far beyond the costs to the populations theydirectly touch.

Global Risks 2009 offers an assessment of how the focusrisks interconnect with others and how they may evolveover time. It also raises many questions about the risk ofignoring other potential crises when dealing with a currentone. The events of 2008 underscored the importance oftwo major ideas behind the work of the Global RiskNetwork: global risks can only be understood whenexplored in the context of their interlinkages with otherrisks and no one group acting alone can mitigate themeffectively. These aspects of global risks are also whythey pose such a challenge for policy-makers andbusiness leaders alike. However, as they try to resolvethis situation as quickly as possible, leaders must bemindful of the long-term implications of today’s decisions.

1. The Global Risks Landscape 2009


How the global risks landscape has evolved sincelast yearThe following risks came to the fore in the assessmentfor 2009, both in terms of likelihood and severity and thedegree to which they are “pivotal” risks, i.e. that they areat the nexus of many risks.

Deteriorating fiscal positionsThe deterioration of fiscal balances in several major G8countries and other economies was judged asincreasing in both likelihood and severity. From theinterconnections map it can be seen that this risk islinked to a number of other central economic, societaland economic risks: retrenchment from globalization, afall in the US dollar, further asset price declines, the riseof chronic diseases and underinvestment in publicinfrastructure.

Node size: denotes severity, Node colours: red – economics; dark green – geopolitics; light green – environmental; purple – technology; blue – society

Lines: line thickness denotes the strength of the interlinkage. The direction of a thicker line segment indicates when one risk is the stronger in the relationship.

Proximity: the map shows risks that are tightly interlinked to many other risks as closer to one another.

China hard landingThough the most recent World Bank forecast (November2008) suggests China will still achieve growth of 7.5% in2009, given the importance of China in terms of itspotential to be a source of global growth and given itsmassive net-creditor position mainly with respect to theUS, a slowdown to 6% or below in China’s growth ratewould have significant impact on the already weakglobal economy. This risk is highly connected to a fall inthe US dollar, to energy and food price risks, and tohealth risks.

Asset price collapseThough the effects of sharply declining asset prices arealready playing out, the assessment continues to placethis risk as very high on both the likelihood and severityscale across different asset classes and regions. Many


Figure 2: Risks Interconnection Map (RIM) 2009

These pages should be read with the front inside flap open for an overview of all charts


experts expect the decline in asset prices to continueover the coming months as the financial crisis unwindsfurther and the recession leads to bankruptcies andcredit defaults.

Resource challengesLinking several of the risks on the assessment, includingclimate change-related weather events and decliningwater quality and availability as well as energy, theselonger term risks have remained almost constant sincethe last assessment. Nearly half of the world’s populationalready live in high water stressed areas and the links tofood security, geopolitical and health risks are strong. Inthis report, the linkage between energy, water and landis discussed more fully.

Global governance gapsIntroduced for the first time in the 2009 assessment,experts and Global Risk Network members deemed theabsence or lack of effective and inclusive governance onglobal issues such as financial stability, trade, climatechange, water and security as a source of risk in and of

itself. The assessment places this gap as highly likelyand severe in its impact. As the interconnections mapshows, weak global governance sits at a central positionbetween geopolitical, economic and environmental risks.

A note on health-related risksThough not discussed extensively in this report, chronicdisease, infectious disease and pandemics all remainhigh on the assessment, particularly in terms of potentialseverity in economic and loss of life indices. Chronicdisease, in particular, is not only prominent in theassessment but is also central on the interconnectionsmap, linking strongly to food prices and infectiousdisease but also to China’s growth and fiscal crises.According to the World Health Organization (WHO),chronic diseases (including heart disease, stroke, cancer,chronic respiratory disease and diabetes) are currentlythe cause of 60% of deaths annually worldwide, ofwhich 80% occur in low- and middle-income countries.Health spending already represents a significant burdenon public spending, which will increase as fiscalpositions deteriorate and budgets come under pressure.

Likelihood

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Figure 3: Global Risks Landscape 2009: Likelihood with Severity by Number of Deaths

Source: World Economic Forum 2009 Please see inside flap for key

8 | Global Risks 2009 * For a note on the tool behind this chart please see Appendix 2

Country exposure to global risksAs the Risk Interconnections Map (RIM) offers an overview of linkages, a complementary approach is to consider theramifications of these interactions at regional and country level. The chart below is derived from a model looking atthe global risk exposure of 160 countries*. The model uses 24 of the global risks that are assessed in this report.Below, country exposures to economic risks (on an increasing scale, from low to high), which can change rapidly, aredepicted on the horizontal axis. Exposures to more slow-moving environmental, geopolitical, health and technologicalrisks are displayed vertically (also on an increasing scale, low to high).

Looking at different clusters, the chart underscores regional clusters and outliers. It reveals a fairly high level ofcohesion with respect to economic risks among European countries. In contrast, the variation in risk exposures is farlarger along the domain that includes geopolitical, environmental, health and technological risks. A closer analysis ofthe individual risks (not shown here) suggests that drivers for dispersion in Europe are mainly geopolitical and, to alesser degree, environmental risks, with particularly high exposures to geopolitical risks in countries of the formerSoviet Union.

The picture for Asia is reversed. Asian countries are much more diverse with respect to their exposures to economicrisks, but comparatively tightly clustered – however at a higher median risk level – when it comes to the geopoliticaland environmental risk dimensions.

African countries form, in general, a comparatively tight cluster with respect to environmental, geopolitical, health andtechnological risks dimensions. Note that their median exposure is lower than that for Asian countries, and also thatAfrica is not quite as strongly exposed to economic risks as is Asia. Though this chart should only be taken as a toolto explore possible risk exposure, it does suggest that certain regions and countries have the potential to reduce theiroverall risk exposure along one or the other axis.

Figure 4: Exposure of 160 Countries to 24 Global Risks

Source: Zurich Financial Services, 2008

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2. The Financial Crisis and Global Risks

1Pension and healthcare reform is examined in a recent World Economic Forum study entitled Financing DemographicShifts: The Future of Pensions and Healthcare in a Rapidly Ageing World: Scenarios to 2030, World Economic Forum, 2008.

A crisis in an interconnected worldOver the past 18 months, a crisis that began in a smallsegment of the US housing market evolved into a globalcredit crisis of systemic proportions. After the demise ofLehman Brothers and the near-collapse of AIG inSeptember 2008, credit markets became dysfunctionaland capital flows that had already slowed ground to ahalt. As global banks continued to reduce leverage, theimpact of the crisis began to engulf households andbusinesses around the world. By the end of 2008, mostadvanced economies were simultaneously in recessionfor the first time since World War II, reducing growthprospects in emerging markets due to lower demand forexport goods. As a consequence, global growth isexpected to remain below potential in 2009 and 2010.

The speed at which these events unfolded wasunprecedented. In Global Risks 2008, “panic” wasidentified as an element of the anatomy of a systemicfinancial crisis that in this case exacerbated pressure onasset prices and induced contagion effects to the rest ofthe financial system and around the globe. In this sense,2008 served as a reminder of how the world and its risksare highly interconnected. Contagion not only arisesthrough linkages in trade and finance, but also throughthe often complex interaction of risks that increasesuncertainty and renders decisions more difficult (seeFigure 2, page 8).

Increased short-term economic risks and focus onthe long termAs discussed in the last two global risks reports, thecollapse of asset prices marked only the beginning of acomplex chain of events that exposed numeroussystemic vulnerabilities and triggered other risks andpotentially adverse developments. The salient risks likelyto affect the global economy through 2009 include:

• Deteriorating fiscal positions. The US, UnitedKingdom, France, Italy, Spain and Australia are allalready running high deficits. Massive governmentspending in support of financial institutions and growthare threatening to worsen fiscal positions that arealready precarious in many countries. The convergenceof this decline with rising health and pension costs inindustrialized economies due to demographic trendswill place further fiscal pressure on governments1.

• A further significant reduction in China’s growth.The decline in export demand has led to a substantialreduction in China’s overall economic growth,increasing considerably the risk of a hard landing thatwould stress the financial system and could generatesocial tensions within China and beyond as othereconomies face similar declines. Over recent years,China built up nearly US$ 2,000 billion in foreignreserves to prevent the renminbi appreciating. Althoughstarting mid-2007 China began to allow a moderateappreciation, the trend reversed towards the end of2008 with the rapid rise of the US dollar relative tomost other currencies.

• Continued depreciation of asset prices. Althoughglobal equity markets have declined on average bymore than 50% in a very short time, the vicious circlebetween falling asset values, write-downs andattendant pressure on the capital position of financialinstitutions and continued deleveraging appears to beunbroken. This vicious circle is now affectingmanufacturing, services and households around theworld and the credit crunch has generated asubstantial weakening of economic activity andgrowing credit losses.

• Deflation replaces inflation as a key concern.In Global Risks 2008, the impact of high energy andfood prices in combination with rapid credit growthwere strongly linked to concerns about inflation. A yearlater, uncertainty in the financial sector, falling assetprices, poor credit conditions, weak demand and risingunemployment could create a deflationary spiral.However, the short-term risk of deflation must be seenin the context of a long-term inflation risk caused bythe large monetary stimulus in pursuit of financial andeconomic stability and the risk posed by the growingpublic debt. Economic history is littered with periodsduring which governments reduced their debt burdenthrough inflation.


10 | Global Risks 2009 * For a note on the tool behind this chart please see Appendix 2

Country Exposure to Asset Bubbles and Economic RisksBefore the current global downturn, it was often claimed that emerging markets had decoupled from advancedeconomies. It is clear, however, that with respect to cyclical changes, emerging and advanced economies continue tobe closely correlated; a fact that may have been masked by years without sharp recessions.

Developing and emerging market countries are tightly clustered with respect to economic and asset bubble risks butto different degrees. African countries, for example, have relatively fewer financial and real assets, and thus lowerexposure to asset bubbles. Even their overall exposure to economic risks is small, reflecting in part their laggingintegration into global markets.

In contrast, East Asia shows high exposures to economic and asset bubble risks; in fact, their overall exposure is verysimilar to Japan and the US. Most Asian economies are heavily exposed to a hard landing in China. Asia is alsosubject to risks related to the price of oil, dollar fluctuations and a retrenchment from globalization, with the latterbeing especially acute for the small and open economies of Hong Kong SAR and Singapore.

Figure 5: Country Exposure to Asset Bubbles and Economic Risks


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Beware of unintended consequencesThe risks associated with a decline in China’s growth,deteriorating fiscal positions and deflation illustrate theneed for forward-looking policies. While it is essential forleaders to respond forcefully to the current financialmarket instability and the risk of a global recession, theymust also be mindful of the implications that today’sdecisions have in the long term. Risks related tounderinvestment in infrastructure, for example, or thedegradation of natural resources and climate change,may be low in the short term, but these risks andassociated losses increase in a longer time horizon.

Policy-makers must also consider the unintendedconsequences arising from regulation and governmentinterventions. Market participants always react toincentives and one can argue that the growth ofunregulated and highly leveraged investment vehicles wasin some part due to market participants’ activitiesdesigned to avoid regulation that they perceived asonerous. Indeed, this regulatory arbitrage added to theopacity that made it difficult to spot the extent of theweaknesses in the system. Hence, future financial marketregulation must strike a fine balance between fostering anenvironment conducive to innovation and reducing therisk of systemic failure. This calls inter alia for regulatorymeasures that reduce pro-cyclicality and assignaccountability to reduce incentives for excessive risktaking that can have disastrous results.

Government interventions in support of the financial andmanufacturing sectors carry the risk of rewarding failureor propping up inefficient corporations and industries.There is also an inherent risk of creating uneven playingfields for companies excluded from access togovernment funds. This tends to impede competitionamong locally and globally active corporations, which willultimately hurt consumers. If interventions are necessary,then governments should develop exit strategies bysetting firm milestones for their duration and clearconditions for the industries concerned.

Improving risk managementThe credit crisis has revealed glaring gaps in riskmanagement. Banks, for example, learned at their perilthat the underestimation of liquidity had created severesystemic risk. Moreover, there was a significant lack ofclarity about the extent of risk exposure in each part ofthe system and financial organizations were not proactiveenough in seeking out that information.

However, identifying and understanding individual risks isnot enough. Risk management must also account forinterlinkages and remote possibilities. Low-probability,high-severity events, such as the terrorist attacks of 9/11,the Asia tsunami of 2004 and the current global creditcrisis do happen. All of these events were consideredoutside the normal distribution of experience and allimposed high human and economic costs, which affectpeople, regions and industries that are often quite farremoved from the epicentre of the catastrophe.

But this should be no reason for paralysis. Riskmanagement that considers extreme events, employsstress testing and calibrates quantitative approaches withinformed qualitative judgments can make a difference.Today’s arsenal of tools is impressive. But models havetheir limits and decision-makers need to be mindful of theassumptions, sensitivities and limitations of the modelsused in the analysis and anticipation of risk, and of theirown inherent biases.


Human risk perception and behaviour have beenscrutinized by economists, psychologists andneuroscientists in recent years. As a more recentinterdisciplinary subject, behavioural economics is stilldeveloping and its policy implications are only beginningto be understood. However, basic elements are comingmore clearly into focus. Risk perception is one suchelement. When faced with risks, humans often respondin ways that are deeply rooted in their physiological andneurological make-up. Fear, doubt, fight or flight are allemotions and responses that limit our capacity forrational decision-making. Fear of loss is an example ofone type of risk behaviour. In many different experiments,research has found that people exhibit loss aversion byavoiding short-term expenditures, even though theycould actually result in significant long-term gains. Morespecifically, people often miss an opportunity to mitigaterisks by not acting with a long-term perspective and bynot taking interdependencies into account.

An example from disaster mitigationDisaster preparedness and response planning is a goodexample of how people fail to take sufficient action eventhough they know they are exposed to a serious risk.Property owners, lenders, investors and governmentagencies often ignore worst-case scenarios and do notinvest adequately in infrastructure or enforce regulationsdesigned to reduce the risk of catastrophes andaccidents.

How can one explain this behaviour? Part of theresponse is that people rarely look at probabilityestimates in choosing between alternatives and tend toignore risks with perceived likelihoods falling below somethreshold of concern. For instance, despite the firstterrorist attack against the World Trade Center in 1993which cost insurers several hundred million dollars,terrorism risk continued to be included as an unnamedperil in most US commercial insurance policies. Whenthe 9/11 attacks occurred, insurers and reinsurers fromall over the world had to pay US$ 35 billion of insuredlosses.

There is another reason why many people do not actuntil after a crisis has occurred. Individuals andcorporations have short time horizons when planning forthe future so they may not fully weigh the long-termbenefits of investing today in loss reduction measuresthat could benefit them in the future. The upfront costsof mitigation loom disproportionately large relative to thedelayed expected benefits over time. Applied tobusinesses, short-term horizons can translate into aNIMTOF perspective (Not in My Term of Office). In otherwords, if a major crisis occurs everyone hopes it is noton their watch.

Overcoming myopia: thinking aheadOne way to overcome the behavioural biases caused bymyopia and misperception of risk is to change thedecision time frame in which risk information ispresented. For example, recent research2 shows theimportance of reframing the probability dimension sothat people pay attention to the consequences of anevent. Rather than specifying that the chance of adisaster occurring next year is greater than 1 in 100,experts could indicate that the chances of a disasteroccurring in the next 25 years exceeds 1 in 5. These twoprobabilities are identical except that the time horizonhas been stretched to obtain the latter figure. Empiricalstudies have shown that people are much more likely toovercome their risk misperception and to considerundertaking protective measures when they focus on aprobability of greater than 1 in 5 over 25 years ratherthan 1 in 100 next year because the loger time horizon isabove their threshold level of concern.

So how might this concept be applied to encouragelong-term thinking? One proposal in the context ofcatastrophe risk financing is to move from the usual one-year contracts towards the development of longer termcontracts. Similar strategies may also be appropriate toencourage longer term thinking in other areas. Forexample, the standard annual bonus systemimplemented by many organizations could be modifiedso that a more significant portion of managers’remuneration packages are contingent on multi-yearperformance rather than on just the past 12 months.This might induce managers to consider moresystematically the potential consequences of theirimmediate actions in the long run and to pay moreattention to worst-case scenarios rather than hoping thatthey will not occur by the end of the current year.

Furthermore, given the interconnectedness of the worldtoday, actions taken in one part of the world can haveripple effects thousands of miles away and months andyears after these decisions have been made. Innovativestrategies will be crucial to help businesses andindividuals focus on the long term and to move beyond“it cannot happen to us” to “what if it occurs” – amentality better suited to the current climate ofinterdependent global risks.

The Implications of Risk Myopia and Misperception

2Wharton on Making Decisions, Protective Decisions: Fear or Prudence(Stephen J. Hoch and Howard C. Kunreuther ed), Wiley 2001, http://opim.wharton.upenn.edu/risk/downloads/01-41-HK.pdf


2008 saw commodity prices fall sharply from historichighs. The price of crude oil (WTI) declined from a peakof US$ 147 a barrel in mid-July 2008 to below US$ 50 inDecember 2008. Other commodities experienced similardeclines. Between March 2008 and August 2008, steelfell by 68%, wheat by 67% and ethylene by 50%. Thisboom and bust further highlighted just how exposedmany economies and industries are to the impact ofcommodity prices. Producing nations have seen theirgrowth prospects deteriorate, increasing theirvulnerability to other risks. From a corporate perspective,it underlined the need for new approaches to managingboth price levels and volatility patterns.

Heavy commodity users are now facing a new paradigmwhere reduced prices but higher volatility is notnecessarily giving the expected economic benefit. A newphenomenon has emerged whereby reduced price levelsshould support increased industrial activity; however, thehigher price volatility adds more uncertainty and,therefore, potentially reduces economic activity. While,until recently, commodity/raw material users had tomanage margin compression as a consequence ofincreasing commodity prices, the pressure has nowshifted to the supply side. Producers are now sufferingfrom both a drop in commodity prices and reduceddemand. Both market situations impose particularmanagement challenges beyond pure financial hedgingfor both the demand and supply side. Throughout thehigh price period, businesses found it difficult to securesupply, achieve price certainty and, ultimately, pass theincreased costs on to customers. The prospect for 2009means that heavy commodity users are seeking to adaptto a new context and to reflect the lower price/highervolatility situation in their commodity risk managementapproach.

Corporate commodity risk management clearly needs tobe more responsive to changing price levels and higherthan expected volatility. For most commodity users thismeans a fundamental reassessment of their hedgingobjectives over a longer period of time; the incorporationof uncertainty in price and volatility forecasts; a betterunderstanding of exposures; and finding a moresophisticated way of assessing the range of hedgingtools and approaches available to manage thecashflow/earnings volatility. In other sectors, such asenergy and metals, these tools are already an integralpart of industry best practice but previously less-exposed sectors, such as chemicals and fast-movingconsumers goods, are now looking at these tools.

The aim is to have a clear understanding of netexposure, which is often a combination of a number oftransactions including foreign exchange components.Commodity price risk management tools involve a rangeof financial instruments, physical contracts and thepricing mechanism for the sales contract. For a numberof commodities, proxy hedges (using a hedging with adifferent commodity than the underlying exposure) aredeployed due to the lack of liquid hedging markets. Inthese circumstances, the basis risk needs to bequantified and monitored.

In making these hedging decisions, companies are usinga number of metrics and sophisticated optimization toolsthat allow companies to determine their risk appetite andevaluate hedging strategies accordingly. However, toimplement these approaches companies need toimprove the transparency of their exposures and includea cross section of functions such as procurement, sales,treasury and controlling to ensure alignment andcoordination of actions.

Hedging Commodities Risk: Lessons Learned

Figure 6: Commodity Price Volatility

Source: Datastream, graph courtesy of Oliver Wyman (MMC)

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Addressing governance gaps and avoidingregulatory overreactionThe financial crisis has underscored the need for policyresponses that account for the global nature of crises. Ithas revealed the limits of the current financialarchitecture, shown the inadequacy of early warningsystems, and exposed deficiencies in the coordinationamong policy-makers, regulators and supervisors. Atnational level, the financial crisis also exposed the limits ofsupervision that is geared only to local entities andneglects the systemic implications of financial institutionswith global reach. There can be little doubt that globalgovernance and the institutions charged to develop theframeworks and carry out such governance should bestrengthened.

However, this is easier said than done. The historicdevelopment of different legal systems, to point to justone difficulty, virtually ensures that regulatory authority willcontinue to reside primarily with national bodies. Hence,the financial architecture of the near future should focuson setting broad standards for coordination andcooperation among regulators that improve the

surveillance of economic and financial activities andsupport the implementation of corrective measures.Regulation can help create a climate of confidence,stability and certainty that promotes innovation, growthand competitiveness. However, poorly designed orimplemented regulation can also drive up the cost ofdoing business, operate as a barrier to trade and capitalflows or simply shift risk into less regulated parts of thesystem. One extreme, but plausible, scenario that shouldbe considered is a regulatory overreaction to the recentcrisis which increases transaction and compliance costswhile ultimately proving ineffective in the face of the “next”crisis3. Policy-makers and regulators must be careful toweigh the costs and consequences of regulatory shifts toensure that they produce a net benefit in terms of bothsystem efficiency and stability. From the corporateperspective, the current uncertainty about the extent ofthe changes that may happen over 2009 is difficult tomanage. The changes need to be measured but toreduce uncertainty they must be communicated swiftly toallow business to track them across their markets andtake the necessary actions.

The “5i” framework based on insight, information,incentives, investment and institutions discussed inGlobal Risks 2007 can also be applied to analyse theglobal credit crisis. It can help us to identify the risks,assess their interaction and design mitigation activities.

• Insight: Financial innovation appeared to increase thefinancial system’s efficiency by spreading risks to awide spectrum of market participants. However, thefailure to cut through the opaqueness of manystructured products and assess the multilayeredleverage pyramid created systemic risk. Hence,forward-looking risk management must identifyinterlinkages and account for low probability/highseverity events.

• Information: Financial markets must always copewith imperfect information and moral hazard.Transparency is the antidote to remedy deficienciesarising from the asymmetric distribution of information.The growth of the credit bubble can be partly tracedback to the fact that investors were in the dark aboutthe magnitude of liabilities accumulated in structuredinvestment vehicles due to their complexity and thatthey were not covered by the consolidated reportingof banks and broker-dealer institutions.

• Incentives: Market participants respond to economicincentives. The separation of risk origination and riskownership within the originate-to-distribute (OTD)business model introduced by banks over the last 30years led to a lack in due diligence and accountability.

• Investment: Financial markets depend on structuresthat support the flow of information and the timelysettlement of trades. Credit default swaps, forexample, were and continue to be traded over thecounter only and the settlement of contracts used totake weeks (now days). Hence, creating a centralclearing facility for credit derivatives and enabling themto be traded on regulated exchanges would helpimprove the market structure and reduce bothsettlement and systemic risk.

• Institutions: The global credit crisis demonstrated amajor governance gap and the need to improveprudential oversight and regulation. Financial marketstability is a public good, and globalized financialmarkets require a globally coordinated effort to createand maintain this public good. The financialarchitecture of the future must have an element thattranscends national borders. To ensure success itsinstitutions should include broad representation in rule-making bodies, macro prudential surveillance andhave agreed procedures for systematic enforcement.

The Global Risks 5i Framework Applied to the Credit Crisis

3This topic is discussed in greater depth in the World Economic Foum World Scenarios Series report The New FinancialArchitecture: Scenarios to 2020, World Economic Forum 2009


Geopolitical risks and oil dependencyBy focusing on the geopolitical dimension (comprising risks of terrorism, interstate wars, state failure and transnationalcrime) and oil price risk, the following graph illustrates the interaction between two classes of risks that are usuallyconsidered to be Siamese twins. Three points emerge.

• First, oil-producing and oil-consuming countries form two very distinct and separate clusters.• Second, oil producers are exposed to geopolitical risks in varying degrees, with Norway on the low end and Iraq onthe high end of that particular risk spectrum. Mexico and Great Britain, although oil producers too, are set apartand much closer to the oil-consuming countries of Europe.

• Third, it is worthwhile noting that Hong Kong SAR and Singapore are both clustered with the European countriesinstead of with their geographic neighbours in East Asia. They demonstrate a lower exposure to geopolitical risk,while maintaining a relatively high exposure to a rising oil price.

The analysis points to broad scope for collective action. High oil dependency exposes consumer countries indirectlyto geopolitical risk. Advanced economies in particular are shown to have a powerful incentive to reduce their oilconsumption not only for environmental reasons (to cut carbon emissions), but also for reduction of their indirectexposure to geopolitical risk.

Figure 7: Geopolitical Risks and Oil Dependency


CD

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3. Resource Challenges, Sustainability and Competition


Demographics, resources and climate changeDespite a slowdown in the rate of global populationgrowth, the world’s population is still growing andexpected to peak at 9 billion people in 2050, up from6.6 billion in 2006. The past decades have seenurbanization accelerate to the point where over half theworld’s population now live in cities, a trend that isexpected to continue. These shifts are placing greaterpressure on resources and are contributing directly andindirectly to the rising emissions linked to climate changeand the resulting consequences for the environment.

More intensive agricultural methods, greaterindustrialization and growing energy needs, urbanizationand rising incomes in emerging economies are alreadysources of pressure on water resources. Globally,agriculture accounts for 69% of all renewable waterconsumption, industry for 23% and domestic use for8%. The push to improve agricultural productivity in anumber of countries will drive water consumption higher.The flipside is that the focus on increasing agricultural

production, through what is often referred to as a“second green revolution”, could also be used as anopportunity to introduce more water-efficient irrigationtechniques and drought-resistant crops that require lesswater. Nonetheless, as the global population grows, andwater demand increases, the interest in fertile, water-richland will rise. This will be compounded by shifting rainfalland drought patterns due to climate change. Farmersfrom Europe to South-East Asia and Australia arealready having to manage their crops and waterdifferently as droughts are prolonged, or monsoons areheavier but shorter in duration.

Competition for land and waterThis demand on, and for, fertile land for food productionand associated water resources is prompting somecountries to take action to secure access to water bothwithin and beyond their borders. Countries such asSaudi Arabia and China have already made significantinvestments in infrastructure and agricultural productivityto access land for food supplies in Kazakhstan and

Figure 8: Water: At the Nexus of Many Risks



Mozambique respectively. These agreements may be thefirst of many, where countries and corporations lock intheir access to arable land and water supply to fulfil astrategic need or for which they see a future market.China’s arable land availability is decreasing due to soilerosion, pollution and urbanization. Given its very limitedfresh water resources, Saudi Arabia has strategicallychosen to use its water resources for household ratherthan agricultural use. In November 2008, South Koreaannounced that it had taken a 99-year lease on half thearable land in Madagascar in return for employing locallabour and building road and storage infrastructure.

Private companies have also entered this arena, inparticular for water. Water has become an alternativeasset class. Private companies in the US and Turkeyhave already begun to operate or explore the possibilityof pipelines transporting water over long distances toservice demand in water-poor areas. Hedge funds havepurchased rights to glaciers in Scandinavia.

Resource risks and instabilityWhat do these new arrangements mean for internationalrelations? The past few years have seen a number ofagreements between resource-rich, cash-poor countrieswith cash-rich, high-growth nations. Often tied toinfrastructure and capacity building, these agreementsprovide benefits in the short term but may proveunsustainable over the long term in terms ofenvironmental and societal considerations. Land rightsare already a frequent source of tension between peopleand state, and among political factions. Over time, asthe effects of climate change on both water and landavailability become apparent, the rising demand for foodand the pressures on land use for industrial andresidential purposes could trigger intra-state or eveninterstate tensions as sovereignty or contractual issuesarise.

The linked demand for energy and waterWhile the focus on water for biofuels captured publicattention, water is in fact crucial to a range ofconventional and alternative energy and powergeneration solutions. The combination of a need to meetlonger term increases in energy demand and to find“cleaner” alternatives to oil and coal may in fact drive ustowards more water-intensive energy paths. Water isused in the extraction of oil and coal mining, in refining,

for biofuels, in power plants for cooling, for thermal-electric forms of electricity generation and in nuclearpower plants. The water used in these processes is notnecessarily wasted, many are closed loop systems but itis required in large quantities and in some cases it isreturned to natural water areas at a higher temperaturewhich can cause pollution from algae and damage tomarine life.

Demand for energy and water are tightly interrelated,with water critical to energy generation and supply andwater supply dependent upon energy for pumping,treatment, distribution, heating and waste treatment. Onaverage, 50% of the costs associated with water supplyare related to energy. According to a 2008 OECD report,just 2.8 billion people (44% of the world’s population)currently live in high water stress areas but this will riseto 3.9 billion by 2030 (50% the global population) ifbetter water policies are not implemented. Energydemand is also set to rise according to the InternationalEnergy Agency’s latest World Energy Outlook estimates,and global demand will increase by 45%, with 30% ofthis rise coming from coal-fired plants.

Investing to mitigate climate change risksThe current financial crisis underlines how important it isto see risks in the context of a wider system and tounderstand where vulnerabilities lie. Now is anopportune time for industries and governments toconsider the risks related to resources and climatechange, and what they could imply for them in thefuture. At the national level, governments should beconsidering policies that encourage efficient resourcemanagement, especially for energy and water and thatpromote investment in this direction. Governments mustbe long term in their thinking about how their regulatoryregimes need to develop and how they should invest ininfrastructure, which will be one of the key areas when itcomes to long-term sustainable resource management.

Sustainable resource management andinfrastructure investmentAs this report examines in the section on the financialcrisis and global risks, governments in both developedand developing economies are facing tighter fiscalconditions due to the economic downturn. Likewise, thefinancial crisis has dramatically reduced confidence andmade access to capital difficult. The US alone requires


an estimated US$ 1.3 trillion in investment to addressageing infrastructure: the Environmental ProtectionAgency says there is a gap of between US$ 300 billionand US$ 500 billion alone for waste water infrastructure.In November 2008, China announced a US$ 586 billionpackage, most of which will go into infrastructure overthe next two years. Over recent years, China’sinfrastructure spending has averaged 9% of its GDP.India’s public spending on infrastructure has historicallyrepresented 3.5% of GDP; it plans to increase thisamount to 8% in 2012. Worldwide it is estimated thatthe global economy needs about US$ 5 trillion forinfrastructure over the next five years alone – rangingfrom transport networks to sanitation and power – justto maintain the quality of the existing infrastructurenetwork and meet rising demand.

Today’s infrastructure investment choices are key, asthey represent a huge opportunity to spend on projectsthat will result in better, long-term resource management– from technology and plant choices to reduceemissions and waste, to transport and buildingdevelopment that will be more energy and land efficient.A lack of investment now or investment in unsustainableareas will result in further costs through climate change,poor living conditions in crowded cities and, ultimately,will be a drag on future growth. Governments will needto spend effectively but they will also need to implementpolicies that encourage investors to understand the risksand take a long-term view.

Figure 9: Infrastructure: An Investment in Risk Mitigation



2009 is a critical year for international climate changeissues. By year-end the countries at the Copenhagenconference, which is a follow-up to the United NationsFramework Convention on Climate Change (UNFCCC)Kyoto Protocol, must agree to a new protocol to ensurethat international efforts to reduce global greenhouse gasemissions continue beyond 2012. Recent studiesindicate climate change is occurring faster thanexpected. Without resolute action we could faceirreversible changes to the climate. There is pressure onthe discussions in Copenhagen to produce a concreteresult – a framework far more comprehensive, long termand ambitious than the Kyoto Protocol, ironically at atime when the world economy is entering a majoreconomic slowdown.

The four cornerstone issues that the 2009 climatenegotiations need to address are discussed below:

1. A long-term global goal for emission reductionThere is a need for an agreed global goal for emissionreductions by 2050 in the range of 50-80%, comparedto 1990 levels. Greenhouse gas emissions are anexpression of the market’s economic failure toadequately value a public good – the climate. To solvethis market failure a combination of state-definedconditions, caps, incentives and standards will benecessary to give emissions a price and to rewardemission reduction measures.

2. Enhanced national/international action onmitigation

Leaders from developed countries will be under pressureto provide clear targets, milestones and a strategy as tohow the world economy can progress to a low carbonfuture. All countries signing the UNFCCC will need tocommit to a level of carbon emissions by a specific date.Developing nations must be a part of the solution, co-operating with meeting the targets, but also allowed toachieve their economic development goals.

3. Enhanced action on adaptationIf emissions continue to rise at the rate of the past 30years, atmospheric concentrations will increase to700ppm or more, corresponding to global averagetemperatures of +6°C or more by 2050(Intergovernmental Panel on Climate Change (IPCC)2007 4th report; World Energy Outlook, InternationalEnergy Agency 2008). Even if we stopped emittinggreenhouse gases altogether, the effects of globalwarming are now unavoidable. For these reasons,societies will need to adapt to the unavoidableconsequences of climate change.

Importantly, it is developing nations who face the worstconsequences because they are more vulnerable to thephysical effects of climate change than developednations, due to their limited institutional frameworks andfinancial adaptive capacities:• In Africa alone, 75-250 million people will be

exposed to water stress by 2020 (IPCC 4th report).The area suitable for agriculture will decrease andreductions in yields could amount to 50% by 2020.

• Towards the end of the 21st century, projected sea-level rise and storms will affect low-lying coastalareas with large populations potentially triggeringmigration of people.

• Weather-related disasters disproportionately affectthe agricultural sector in least developed countries(subsistence farming) where most farmers have onlylimited access to financial means such as micro-credit and insurance solutions.

4. Enhanced action on technology developmentand transfer

The UNFCCC estimates that 85% of the capital requiredfor low carbon investments needs to come from privatesources. Adjusting public policies to stimulate privateinvestments, technology development and adaptation indeveloping countries will be vital. A major deal flow ofprojects in both today’s realisable low carbontechnologies and tomorrow’s technologies (e.g. carboncapture and storage, next generation photo-voltaics andbiofuels) will be required. Financial and projectdevelopment expertise from the international privatesector will need to partner with governments andmultilateral development banks.

The Road to Copenhagen: An Update

Figure 10: The Cost of Natural Catastrophes

Source: Swiss Re, Economic Research & Consulting

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In 2008, national energy security was challenged frommany different directions. Infrastructure has beendamaged by extreme weather events, for exampleduring tropical storm Gustav in the Gulf of Mexico.Countries such as France and Slovenia have had toclose nuclear plants for safety reasons. Climate policieshave toughened, oil and gas prices have been highlyvolatile, and geopolitical tensions have led to thetemporary closure of gas pipelines and heightenedresource nationalism. The approval and delivery of newpower plants have faced lengthy delays in manycountries and large-scale mergers and acquisitionsamong leading industry players have increased cross-border ownership. The value of global energy-relatedmergers and acquisitions between May 2007 and thelast quarter of 2008 amounted to approximately US$500 billion.

Policy-makers and industry players are struggling toassess the many investment options open to them in thelight of growing energy demand, commitments to reducecarbon emissions, deteriorating infrastructure and thedepletion of fossil fuel resources. The scale of investmentis high (according to the IMF’s World Economic Outlook,between 2007 and 2030 the new expenditure requiredto update and expand global energy infrastructure aloneamounts to US$ 26.3 trillion), the time frames are longand the technological choices require significant trade-offs. Decisions can be piecemeal and often lack thecoherence, vision and follow-through that giveconfidence to all parties.

In this context it is helpful to conceptualize energysecurity as having four objectives:

• Autonomy: energy supply that is within the control ofa country and is not vulnerable to disruption byexternal agents

• Reliability: energy distribution that is safe and securein both the short and long term and meets demandwithout interruption

• Affordability: energy prices that are commensuratewith the buying power of domestic and businessconsumers – at the same time this objective is,however, often difficult to achieve in a mannerconsistent with the final objective

• Sustainability: energy use that is sufficient to supporta high quality of life but does not damage theenvironment to an unacceptable degree

This framework is useful for decision-makers not only toanalyse how their existing infrastructure and renewalplans match up against the different objectives but alsoto understand where their principal exposures lie. This isthe basis for a long-term strategy that not only providesfor a supply mix appropriate to national circumstancesbut also policies that will improve productivity throughincreased energy efficiency and demand reduction.Such a strategy will also need to anticipate thesystematic disruption that might be caused byinnovations such as the introduction of distributedgeneration or the rapid uptake of plug-in electricvehicles.

Effective governance arrangements as well as strategicvision are critical to underpinning decisions at both theplanning and implementation stages. Policy-makers andother energy system players should therefore addressthe following questions:

1. Does our energy policy fully dovetail with our climatepolicy in terms of its goals and measures?

2. Are our regulatory and investment incentives strongenough to drive the development of optimal supplysolutions, grid infrastructure renewal, energy efficiencymeasures adoption and new technologydevelopment?

3. Is there a need to streamline national regulations,harmonize international laws and strengthen bilateraltrading agreements?

4. Does our engagement with the different stakeholdergroups enable us to deploy their different strengths toturn the optimal energy solutions into reality?

Energy Security: Reconciling Growth and Sustainability in FutureInfrastructure Investment

4. Global Governance: a Key to Global Stabilityand Sustainability


The financial crisis exposed fundamental flaws in globalgovernance. In an historic meeting of countriesrepresenting 90% of world GDP, the G20 summit held inNovember 2008 discussed ways to coordinate aresponse and the need for a global, collaborative solutionto the financial crisis. Indeed, as governments andcorporations face the immediate challenge of rekindlinggrowth, there is a risk that other challenges such asclimate change, food security, poverty reduction, andfailing and unstable states are pushed down the agenda,perhaps increasing the severity of these risks in the longrun. Persistent governance gaps in many of these issueswill only serve to exacerbate the related risks.

Where are the gaps?Whether in the economic or security arena, most of themultilateral institutions that operate today were created inthe period following World War II. Their mandates andcapacities were not designed for the highlyinterconnected, multi-polar and, in many ways, moreopen world of today. Economic and demographic shiftshave not been reflected in either their governance ordecision-making structures. Equally, the shift in the rolesbetween the public and private sectors has not been fullytaken on board. Global risks know no borders and globalsolutions are also beyond the realm of any onegovernment. Indeed, they will require not onlyintergovernmental collaboration but also public-privatecollaboration. Again, existing governance structures werenot built to capitalize on the combined strengths ofgovernment, business and civil society.

Addressing global risks through better governanceAt the World Economic Forum’s inaugural Summit on theGlobal Agenda in Dubai in November 2008, the GlobalAgenda Council (GAC) on Global Governance madesome recommendations as to how to addressgovernance gaps. They included: fostering greatercommitment and new leadership on global issues;developing frameworks to draw on expertise and togenerate debate and awareness; marrying publicauthority and regulatory capacity with incentives for theprivate sector to innovate; reforming existing institutions,specifically reforming the UN Security Council; exploringnew mechanisms to provide necessary resources.

Looking at the global risks tracked by the Global RiskNetwork for the past five years with theserecommendations in mind provides a gauge of how muchmore can be done to improve governance. On climatechange and resources, the picture is mixed. On the onehand, the Intergovernmental Panel on Climate Change

has advanced dialogue by encouraging debate amongthe scientific community resulting in improved awarenessand a greater common understanding. On the otherhand, the Kyoto Protocol proved ineffective not onlybecause key governments failed to engage but alsobecause it was unable to offer a frameworkencompassing incentives and adaptation.

Where better and more innovative governance has shownresults is in the area of global health risks. For HIV/AIDStreatment, The Global Fund, a UN-backed public-privatestructure has succeeded in making antiretroviral drugsmore easily available to populations at risk. The WHO hasdeveloped an effective monitoring and informationnetwork for pandemics that operates globally. The risk ofinfectious disease remains high but these examplesillustrate that new forms of governance can be effectiveeven for some of the most borderless and tenacious ofglobal risks.

On water-related risks however, there is currently littleoversight and shared understanding among governmentsand business about not only environmental and securitybut also economic implications. In the absence offrameworks that offer a common base for national andregional dialogue and action around water pricing,sustainability and infrastructure, water-related risks maygo unaddressed. As discussed in the previous section,water scarcity and quality are highly connected to energy,food and health risks. As a global good and a global risk,water is perhaps an issue most in need of globalgovernance for mitigation.

Better governance to avoid retrenchmentThe spread of the financial crisis and the resulting globaldownturn has increased the risk of retrenchment fromglobalization in developed and especially in developingeconomies (as illustrated in Figure 11).

Over the past several decades, globalization has meantcountries and businesses building economic and societalties across the world, opening new markets, providingservices, generating employment and reducing poverty.This momentum has raised hundreds of millions ofpeople out of poverty but more progress is needed. Aglobal downturn will undoubtedly place greater pressureson many economies, developed and developing, butretrenchment, in the form of economic protectionism orunwillingness to engage on climate change, resource orsecurity issues, could create even greater pressures. Nowseems like an appropriate time address governance gapsand thus provide frameworks offering greater certainty to


both governments and business and that will enablesolutions that will benefit all.

Climate change, natural catastrophes andgeopolitical riskNinety per cent of all natural catastrophes are related toweather and severe weather incidents have been on therise over the past decade. Many of the catastrophes,flash floods, droughts and tropical storms affectdeveloping countries far more than developed countries.The losses, both of life and earnings, that thesepopulations experience due to natural catastrophes, arecompounded by the fact that insurance penetration is lowin emerging markets. Thus their recovery is more difficult.

However, even before the financial crisis, emergingeconomies were reluctant to accept the trade-offbetween economic growth and the costs of containingclimate change effects. Now that economic growth isslowing, the risk is that this trade-off becomes even lessacceptable. Developing nations in the regions that arelikely to suffer the most from climate change may not onlysee their growth and development impaired, they mayalso have to manage rising tensions with neighbouringstates as pollution levels and pressure on naturalresources rise. Once again, only globally coordinated andnationally supported efforts will be effective to addressthe challenges related to climate change, themanagement of scarce resources and geopoliticaltensions.

Figure 11: The Risk of Protectionism in Emerging Markets


Node size: denotes severity

Node colours: red – economics; dark green – geopolitics; light green – environmental; purple – technology; blue – society

Lines: line thickness denotes the strength of the interlinkage. The direction of a thicker line segment indicates when one risk is the stronger in the relationship.

Proximity: the map shows risks that are tightly interlinked to many other risks as closer to one another.


During 2008, the World Economic Forum formed 68Global Agenda Councils (GACs) for the express purposeof bringing experts and leaders together to capturestate-of-the-art knowledge and propose solutions for themost crucial issues facing the world today. The GlobalAgenda Council (GAC) on Mitigation of Natural Disastersfocuses on strategies for reducing losses from eventsthat can have catastrophic global impacts. This Counciland a number of other GACs agreed that there is a needto develop innovative long-term strategies for copingwith myopic behaviour by decision-makers and dealingwith an increasingly interconnected world. They suggestthe following principles for thinking about naturalcatastrophes that lend themselves to other areas of risk,such as a technical accident or major terrorist attack:

Principle 1. Appreciate the importance of assessingrisks and characterizing uncertainties surrounding suchassessments

Principle 2. Recognize the interdependenciesassociated with risks and the dynamic uncertainties thatresult from these interdependencies

Principle 3. Understand behavioural biases andheuristics used by decision-makers, such asmisperceptions of probability, myopia and “the disasterwon’t happen to me” attitude in developing riskmanagement strategies

Principle 4. Appreciate the long-term impact ofdisasters on a area’s or country’s economy, politics,culture and society

Principle 5. Implement risk-based pricing of economicgoods exposed to natural catastrophes and createresiliency by considering measures that prevent andmitigate the risks of natural disasters and their social andeconomic impacts

Principle 6. Deal with trans-boundary risks bydeveloping strategies that transcend political boundaries

Principle 7. Consider inequalities with respect to thedistribution and effects of natural disasters. Wherepossible, cooperative agreements should be facilitatedso that those with few resources are assisted by thosewith a greater capacity to help

Principle 8. Develop organizational leadership that isprepared to anticipate the risks of large-scale naturaldisasters and mobilize the organization in the immediatewake of a calamity

Mitigating the Effects of Natural Disasters


The Russo-Georgian conflict during the summer of 2008was a reminder of how geopolitical events and securityconsiderations can suddenly expose a diverse set ofrisks and interrelations, and how little effect existingsecurity institutions have. The conflict strained Russia’srelations with Europe and its neighbours in Central Asia,raising the issue of energy security and dependence.These concerns have been compounded by even morerecent events as Russia again cut off the gas supply toUkraine as 2009 began.

To the fore among the geopolitical risks tracked by theGlobal Risk Network over the past five years are theIsrael-Palestine tensions, Iraq and Afghanistan. As thisreport was going to press, Hamas, having called an endto a six-month cease fire, was sending rockets into Israeland Israeli troops had entered Gaza following a week-long campaign of airstrikes. While the situation on theground in Iraq may have improved slightly, civilians andmilitary personnel continue to be the target of terroristand insurgents attacks. Because of this, reconstruction,which is so necessary to restoring social order andeconomic opportunity for the population, is advancingpainfully slowly. In Afghanistan, despite NATO’s ongoingpresence, the level of violence remains high and thesituation along the Afghan-Pakistan border is a source ofinstability throughout the region and beyond. Indiasuffered a major terrorist event in Mumbai. Though,previous attacks have been equally severe in the terms

of fatalities, the nature of this attack and the targets maysignal the new direction for terrorism on thesubcontinent. Given this and the potential for instability inPakistan, with its troubled borders with Afghanistan andIndia, the world must remain on the alert about events inthis region, dominated by two nuclear powers and, ifnecessary, ready to act in an aligned manner.

In Latin America, problems of violence, corruption andpolitical instability continue to plague parts of thecontinent and uncertainty abounds on theconsequences of the political directions that have beentaken by several countries. On the African continent,Somalia, Sudan and Zimbabwe have the unenviabledistinction of being the states “most at risk of failure” asthey fill the top three positions of Foreign Policy’s FailedStates Index. And recent events in the DemocraticRepublic of Congo have resurrected the complicationsbetween tribal and national boundaries.

Though periodic incidents bring these situations to thefore from time to time, the world does have to bear thehuman and economic losses from enduring conflicts.Though they can be considered as “local” in nature theyappear on the risk landscape with a relatively highdegree of potential severity. Their persistent non-resolution means that there is a permanent risk thatthey spill over, causing greater loss of life and evendestabilizing other countries. These conflicts can affectregions far beyond their borders through terrorism,sudden movements of refugees, ongoing illegalmigration and direct military conflict.

An Overview of the Geopolitical Landscape


In Global Risks 2008, principles of country riskmanagement and the concept of a Country Risk Officer,first introduced in 2007, were explored. Many of thechallenges facing international governance are similar:broad range of risks, divergent incentives, multiplestakeholders and limited resources. However, at acountry and international level, clear, transparentinformation and an integrated, comprehensive riskassessment are essential.

Countries are subject to a myriad of risks includingnatural catastrophes, food safety, pandemics andterrorism. Their governments are charged with theresponsibility of maintaining critical infrastructureconsisting of water, energy, transportation andcommunication while preserving lives and economiclivelihoods under increasing budgetary pressure. Despitedifferences in organizational structures and risk priorities,there are two principles highlighted in Global Risks 2008that governments have applied in practice: integrated,comprehensive, long-term risk assessment andtransparent, clear communication to all stakeholders.Whether through a committee of an existing body or anewly formed international institution, a comprehensiveframework of risk assessment, carefully evaluating

interconnectivity and interdependency, and clearcommunication with all stakeholders should be coreprinciples for risk management on a global scale.Country Risk Officers could serve as the focal point ofcommunication between countries and with internationalbodies for risks of a global nature.

Integrated, comprehensive framework: As anexample, the government of Singapore has instituted a“Whole of Government – Integrated Risk Management”(WOG-IRM) framework to evaluate and prioritize risks ina holistic manner and to help identify cross agency risksthat may have fallen through gaps in the system. As partof the Risk Assessment and Horizon programme,Singapore has even constructed scenarios for energy,food security and climate change illustrating the long-term, comprehensive nature of their risk managementframework.

Transparent data and clear communication of risksto all stakeholders: Japan’s relatively small territory(378,000 square km) suffered 20% of the world’searthquakes between 1996 and 2005. Seventy-five percent of Japan’s assets are concentrated in flood proneareas. The Central Disaster Management Council(CDMC) of Japan is an inter-ministerial body establishedto formulate and promote a comprehensive nationalstrategy for these and other risks. Data from the JapanMetereological Society and local governments, funnelledthrough the CDMC, is used to clearly communicate risksand response to its constituents. In addition, Japanprovides various risk maps to stakeholders as a riskmitigation measure.

Better Risk Management through Better Governance:What Can We Learn from Best Practices in Country Risk Management?

Conclusion


The areas of risk detailed in this report are inextricablylinked. While they will influence decisions and growthover 2009, they also have longer term effects whoseexact shape and reach may not be clear for severalyears. For this reason, it is crucial for decision-makers totake a step back and consider a bigger, broader pictureof the entire landscape of risks that extends both in timeand in space, even when they are under pressure toresolve more immediate problems. The risk landscapeexplored here offers a framework for further discussionthat can be used by business leaders, risk experts andpolicy-makers in their thinking about risk and mitigation.As this report points out, global risks can only beeffectively addressed if there is a commonunderstanding and a willingness to engage in dialogueand action with multiple stakeholders internationallyacross countries, industries and business sectors.

Previous editions of the Global Risk report proposed thecreation of international coalitions of the willing or theinstitution of a Country Risk Officer as possibleapproaches to building effective cross-border mitigationstrategies for global risks. At the local, corporate andeven national level, a great deal of work is being done onmitigation, but building awareness around this work andscaling it up with the appropriate exchange ofinformation, expertise, governance and managementstructures – either within existing institutions or in newones – requires a coordinated and concerted approach.Without this effort, ownership of risks will remainfragmented and the challenges posed by increasinglevels of interconnectedness will dampen prospects ofsuccessful collaboration.

Throughout 2009, the Global Risk Network will continueto work with its partners to leverage its unique platformand networks, explore existing and new mitigationpossibilities and extend awareness of global risks usingthe framework defined in the Global Risks report as abasis for discussion. To this end, it will draw upon theWorld Economic Forum’s expertise in public-privatepartnerships on global issues such as the environmentand health, as well as in competitiveness and scenariobuilding. The Global Risk Network will also exploresynergies with the Forum’s Global Agenda Councils anduse the Forum’s regional platforms to improve itsunderstanding of the geographic distribution of globalrisks, and explore how different countries tackle risk atthe corporate and institutional level. With the question ofglobal governance very much to the fore of world affairs,it will be important to highlight that risk management isas important for governments as it is for businesses, andthat both of these stakeholders have much to learn fromeach other in this area.

Appendix 1: The Risk Assessmentand Risk Barometer


The 36 risks were assessed in terms of their likelihood and their severity. In addressing likelihood, actuarial principles were applied wheresufficient data existed, though for certain risks only qualitative assessments based on expert opinion are possible. In assessing severity,two indices were considered: destruction of assets/economic damage and human lives lost. Both of these latter indices were used,resulting in separate analysis of risks by the two types of severity, though for some risks the lives lost criteria was deemed inapplicable. Itshould also be noted that although some risks by definition evolve over a longer term (e.g. climate change) and others could happen inthe near term (e.g. oil price shock), the likelihood of all risks was evaluated with a 10-year time horizon.

The Global Risks “barometer” below shows how the qualitative 2009 assessment (completed in October 2008) of the likelihood andseverity of each risk compares with the 2008 assessment.

Key:

same assessment as last year

increase

decrease

new risk

not applicable for this risk

# Economic Risks Likelihood SeverityUS$

SeverityNo. ofDeaths

1 Food price volatility

Food prices peaked in mid-2008. Expectations are that food pricesmay be more volatile over the coming years.

2 Oil and gas price spike

In the short term, slowing global demand and fears of a further dropin global growth means the outlook for price spikes over the next 12months is unlikely despite the OPEC in production in December2008. The long-term trend is for rising demand and a potential returnto tighter conditions.

3 Major fall in US$

Experts consider that the dollar could come under pressure asinvestors reflect on the long-term impact of current monetaryexpansion, high fiscal deficits and the continuing fragility of the USfinancial system.

4 Slowing Chinese economy (6%)

Though China’s domestic market could help compensate for its lossof exports due to recession in the US and other markets, thegovernment will need to encourage private spending to boostdomestic consumption.

5 Fiscal crises

Demographic factors (ageing societies) are responsible for largeuncovered liabilities in social security and public healthcaresystems. The pressure on fiscal systems will be exacerbated bycurrent bailout packages and fiscal programmes to jump-startgrowth.


# Economic Risks Likelihood SeverityUS$


6 Asset price collapse

Although prices for many assets (housing, equities, andcorporate bonds) have declined dramatically, there is continuedscope for further losses over a broad class of assets in the shortterm.

7 Retrenchment from globalization (developed)

The outlook is stable but some retrenchment is likely if governmentsrevert to protectionist strategies in an effort to protect jobs asunemployment rises. Cross-border private investment may alsodecrease until investor confidence returns.

8 Retrenchment from globalization (emerging)

Experts considered that the risk of more inward-lookingeconomic policies in emerging economies could also increase inreaction to the current financial turmoil.

9 Regulation cost

This risk was included in the assessment for the first time for 2009.

10 Underinvestment in infrastructure

This risk was included in the assessment for the first time for 2009

# Geopolitical Risks Likelihood SeverityUS$


11 International terrorism

The perceived risk has decreased overall internationally but the riskremains relatively high in several countries such as Iraq, Afghanistan,Pakistan and Somalia.

12 Collapse of NPT

Though the controversial US-India nuclear deal was signed in 2008and no progress was made on the Iranian programme, the outlook isfor neither improvement nor deterioration compared to 2008.

13 US/Iran conflict

With a new US administration entering office, the risk is perceived asless likely

14 US/DPRK conflict

With a new US administration entering office, the risk is perceived asless likely.


# Geopolitical Risks Likelihood SeverityUS$


15 Afghanistan instability

Experts judged that a degree of progress had been made but thatthe severity remains constant in cost and loss of life terms.

16 Transnational crime and corruption

Corruption continues to cost over US$ 1 trillion annually.Transnational crime remains endemic and related to a number ofother global risks.

17 Israel-Palestine conflict

The likelihood of increased tensions is neither greater or less than in2008. Note that this assessment was completed in October 2008.

18 Violence in Iraq

The likelihood of more violence has decreased slightly relative to2008 but the costs and loss of life remain constant.

19 Global governance gaps


# Environmental Risks Likelihood SeverityUS$


20 Extreme climate change-related weather

As the effects of climate change have begun to manifest themselvesin weather events, this risk remains constant year on year but giventhat many of these incidents affect developing regions the number ofdeaths is likely to rise.

21 Droughts and desertification reduces agricultural yields

As the incidence of drought has risen, production has shifted wherepossible to less drought-prone areas or to more drought-resistantcrops. Nonetheless, desertification remains a risk to incomes andhealth in vulnerable regions.

22 Loss of freshwater

Greater awareness and education and improved sanitation is slightlyreducing the number of deaths but overall this risk is constant interms of likelihood and severity.

23 Natural catastrophe: cyclone

Improved building standards and better warning information have tocontributed to reducing loss of life from cyclones but the risk remainsconstant for relevant areas.


# Environmental Risks Likelihood SeverityUS$


24 Natural catastrophe: earthquake

The threat of earthquakes remains the same as they are driven bygeophysics. Improved building standards and response mechanismsare slightly reducing their impact.

25 Natural catastrophe: inland flooding

This risk rose over previous years, primarily due to flood plaindevelopment and an expected increase in climate change-relatedweather events but remains constant from 2008 to 2009.

26 Natural catastrophe: coastal flooding


27 Air pollution


28 Biodiversity loss


# Societal Risks Likelihood SeverityUS$


29 Pandemic

Work continues on awareness and coordination among differentagencies but the risk is constant, as is uncertainty about the natureof a potential outbreak.

30 Infectious disease

Though infection rates for some diseases are stabilizing in someregions, e.g. HIV/AIDS in sub-Saharan Africa, overall the risk remainsconstant and severe in terms of loss of life.

31 Chronic disease

The incidence of chronic disease is rising across both the developedand developing world. Medical advances and awareness can reducethe risk severity but chronic disease is still the main cause of deathworldwide.


# Societal Risks Likelihood SeverityUS$


32 Liability regimes

Experts saw the risk of US-style liability regimes spreading to othercountries as increasing.

33 Migration


34 Critical Information Systems (CII) breakdown

A balance between vulnerability due to increased interconnectivityand system dependency and improved security mean that expertsjudged this risk as stable.

35 Emergence of nanotechnology risks

As the study and use of nanotechnology and materials progresses,uncertainty remains about the potential risks involved.

36 Data fraud/loss


Appendix 2: Global Risks Report: Process and Definition


The Risks Interconnections Map (RIM) andperception surveyA primary objective of the Global Risk Network is toincrease awareness and understanding of theinterlinkages among risks and the complexity this impliesfor decisions about risk management and mitigation. Thedata used to build the Risk Interconnections Map (RIM)(see Figure 2) is drawn from two sources. Theconnections and strengths are developed using data fromthe Global Risks Perception Survey. This Web-basedsurvey was completed by over 120 risk experts andmembers of the Forum’s Global Agenda Councils. Thenodes on the RIM represent the same assessment datafor “severity” as the barometer. The thickness of the linesconnecting the risks represent the strength of therelationship between them. Where the first part of a lineemanating from one risk is thicker it indicates that risk asthe dominant one.

A note on the regional risk maps produced byZurich Financial ServicesThe analysis is based on a methodology and data setdeveloped by Zurich Financial Services. The methodologyis broadly comparable to statistical cluster analysis thatpartitions a data set into subsets (or clusters) with theproperty that the data in each subset (cluster) sharecommon characteristics – in this case the characteristicsare risks. Countries with similar risks are close neighbourson the risk map; they form clusters. In contrast, countriesthat are dissimilar with respect to their risks are displayedcomparatively far apart from each other; they are not partof a cluster.

The data set covers 160 countries; the 24 global risks aregrouped in five risk classes: economic, environmental,health, geopolitical and technological risks. Hard data isdrawn from established public sources and incorporatedinto the model using parameters for high to low riskdeveloped by Zurich Financial Services. The data used todetermine the interconnections among the risks is drawnfrom the qualitative assessment data on thoseinterconnections established for Global Risks 2008.

The criteria used to define global risks

The criteria for global risks have been set as follows:

Global Scope: To be considered global, a risk shouldhave the potential to affect (including both primary andsecondary impact) at least three world regions on at least

two different continents. While these risks may haveregional or even local origin, their impact can potentiallybe felt globally.

Cross-Industry Relevance: The risk has to affect threeor more industries (including both primary and secondaryimpact).

Uncertainty: There is uncertainty about how the riskmanifests itself within 10 years combined with uncertaintyabout the magnitude of its impact (assessed in terms oflikelihood and severity).

Economic Impact: The risk has the potential to causeeconomic damage of around US$ 10 billion.

Public Impact: The risk has the potential to cause majorhuman suffering and to trigger considerable publicpressure and global policy responses.

Multistakeholder Approach: The complexity of the riskboth in terms of its effects and its drivers as well as itsinterlinkages with other risks require a multistakeholderapproach for its mitigation.

The Global Risk NetworkTo refine its understanding of risk, the Global RiskNetwork conducted a series of workshops, interviewsand meetings throughout 2008 and expanded its workboth globally and on a regional basis. This included thepublication of three regional reports, Africa@Risk,Europe@Risk and India@Risk, as well as a topical reporton emerging markets and high-growth companies, GlobalGrowth@Risk.

Overall, the Global Risk Network identified this year atotal of 36 specific risks to the international communityover the next 10 years, using an updated taxonomy(compared with 31 risks featured in the 2008 taxonomy).Risks that were previously aggregated for variouspurposes have been disaggregated throughout this reportfor consistency and improved comparability year on year.A number of risks on the previous year’s list have beenremoved or rephrased because they failed to meet thecriteria of the revised methodology, while the 2009 listalso features eight new additions (flagged in the tableabove and on the visualization of the global riskslandscape, inside flaps).

Contributors and Acknowledgements


This report was prepared by the Global Risk Network of theWorld Economic Forum in conjunction with its partners.

Global Risk Network

Irene Casanova, Associate Director, Global Risk NetworkViktoria Ivarsson, Project Manager, Global Risks ReportStéphane Oertel, Associate Director, Global Risk NetworkFiona Paua, Senior Director, Head of Global Agenda Counciland Strategic Insight TeamsPearl Samandari, Team Coordinator, Strategic Insight TeamsSheana Tambourgi, Director, Head of the Global RiskNetwork; Editor, Global Risks 2009

Global Risks Report Partners

Citigroup, USAJohn Ingraham, Managing Director, Head of RiskAggregation, Citigroup

Marsh & McLennan Companies (MMC)Sara Dixter, Manager, Oliver Wyman (MMC), United KingdomJohn Drzik, President and Chief Executive Officer, OliverWyman Group, MMC, USADavid Frediani, Senior Vice-President, International and ClientDevelopment, MMC, USAJohn J. Merkovsky, Managing Director, Marsh RiskConsulting, MMC, USARoland Rechtsteiner, Partner, Oliver Wyman (MMC),SwitzerlandAlex Wittenberg, Partner, Oliver Wyman (MMC), USA

Swiss ReAnwarul Hasan, Vice-President, Risk Management, SwissRe, SwitzerlandKurt Karl, Senior Vice-President, Head of EconomicResearch & Consulting, Swiss Re American Holding Corp.,USARaj Singh, Chief Risk Officer, Member of the ExecutiveBoard, Swiss Re, SwitzerlandTeri Taylor, Director, Head of Emerging Risk Management,Swiss Re, SwitzerlandLisa Wyssbrod, Director, Senior Issue and PartnershipManager, Swiss Re, Switzerland

The Wharton School, University of Pennsylvania, USAWitold J. Henisz, Associate Professor of ManagementHoward Kunreuther, Cecilia Yen Koo Professor; Co-Director,Risk Management and Decision Processes CenterErwann Michel-Kerjan, Managing Director, Center for RiskManagement and Decision Processes, Wharton School,University of Pennsylvania

Zurich Financial Services, SwitzerlandRoland Cochard, Research Assistant, Risk AssessmentRoom

Daniel M. Hofmann, Group Chief EconomistKerry Karageorgis, Development Director, Risk AssessmentRoomAxel P. Lehmann, Chief Risk Officer, Member of the GroupExecutive CommitteeSamuel Schenker, Research Assistant, Risk AssessmentRoom

Expert Workshops

Over the past year, the Global Risk Network has engagedwith a wider group of experts in workshops and meetingsheld in New York, London, Dalian, Delhi and Zurich. Theseworkshops, along with the risk assessment process andmeetings in Nigeria, Kenya, South Africa, China, Turkey andIndia, have provided broad expertise and invaluable insightfor this report. They are an integral part of the Global RiskNetwork’s mandate to foster and support multistakeholderdialogues to improve understanding of global risks and toincrease the possibilities for risk mitigation.

We would like to thank all of those who contributed for theirtime and above all for their insights:

Ahmet Akarli, Executive Director, Goldman SachsInternational, United KingdomEfkan Ala, Undersecretary of the Prime Ministry of TurkeyTowfiq M. Al-Bastaki, Assistant General Manager, RiskManagement & Compliance Division, Shamil Bank ofBahrain, BahrainLaura Alfaro, Associate Professor, Harvard Business School,USABerrak Alkan, Editor, Chairman’s Office, Dogus Group, TurkeyRoss Anderson, Professor of Security Engineering, Universityof Cambridge, United KingdomYilmaz Argüden, Chairman, ARGE Consulting, TurkeyAttila Askar, President, Koç University, TurkeyCurtis Baron, Director, Business Continuity, Europe,Information Technology, Credit Suisse Securities (Europe) Ltd,United KingdomGuy Battle, Originator and Founder, Dcarbon8, UnitedKingdomEsther Baur, Director, Head Issue Management, Swiss Re,SwitzerlandErik Berglöf, Chief Economist, European Bank forReconstruction and Development (EBRD), LondonKip Berkley-Hearing, Group Risk Manager, BT Plc, UnitedKingdomSimon Biggs, Director, Institute of Gerontology, King’sCollege London, United KingdomJaime de Bourbon Parme, Head, Crisis ResponseOperations, Ministry of Foreign Affairs, NetherlandsPhilippe Brahin, Director, Head of Group Regulatory Affairs,Swiss Re, SwitzerlandIan Bremmer, President, Eurasia Group, USA


Cath Bremner, Head of Corporate Development, The CarbonTrust, United KingdomDavid Bresch, Director, Head of Sustainability and EmergingRisk Management, Swiss Re, SwitzerlandShlomo Brom, Director and Senior Research Fellow, Programon Israel-Palestinian Relations, The Institute for NationalSecurity Studies, IsraelChristopher Bunting, General Secretary, International RiskGovernance Council (IRGC), SwitzerlandAli Carkoglu, Associate Professor, Faculty of Arts and SocialSciences, Sabanci University, TurkeyJohn Chipman, Director-General and Chief Executive,International Institute for Strategic Studies (IISS), UnitedKingdomSean M. Cleary, Chairman, Strategic Concepts (Pty) Ltd,South AfricaBenjamin H. Cohen, Member, Secretariat, Financial StabilityForum, SwitzerlandRoger Courtney, Professorial Fellow in ConstructionInnovation, University of Manchester, United KingdomAron Cramer, President and Chief Executive Officer, Businessfor Social Responsibility (BSR), USAJames Darcy, Director of Programmes, Humanitarian PolicyGroup, Overseas Development Institute, United KingdomWilliam Dick, Consultant, Commodity Risk ManagementGroup, Agriculture and Rural Development, World Bank, USASamuel A. DiPiazza Jr, Chief Executive Officer,PricewaterhouseCoopers International,PricewaterhouseCoopers, USASoumitra Dutta, Dean, External Relations, and Roland BergerChaired Professor in Business and Technology, INSEAD,FranceEsther Dyson, Chairman, EDventure Holdings Inc., USACan Erkey, Professor, Koç University, TurkeyEsra Ersen, Office of the Chairman, Economic ResearchManager, Dogus Group, TurkeyAhmet O. Evin, Professor, Sabanci University, TurkeyMarie-Valentine Florin, Deputy Secretary-General,International Risk Governance Council (IRGC), SwitzerlandStephen E. Flynn, Senior Fellow, National Security StudiesProgram, and Jeane J. Kirkpatrick Chair in National SecurityCouncil on Foreign Relations, USAAstrid Frey, Vice-President, Economist, Swiss Re,SwitzerlandBulent Goktuna, Chairman, Mineks International, TurkeyAntonio Guterres, UN High Commissioner for Refugees,GenevaBeat Habegger, Senior Researcher, Comprehensive RiskAnalysis and Management Network, SwitzerlandKatherine Hagen, Chief Executive Officer, Geneva SocialObservatory, SwitzerlandRoman Hohl, Director, Head Agro Americas, Asia,Corporates, Swiss Re, SwitzerlandThomas Holzheu, Deputy Head of Economic Research andConsulting, Swiss Reinsurance Financial ServicesCorporation, USA

Richard J. Howes, Principal Executive Officer, Balance Sheet,Asset Management, Challenger Financial Services Group,AustraliaBridget M. Hutter, Director, Centre for Analysis of Risk andRegulation, London School of Economics and PoliticalScience, United KingdomRolph Kurt Jenny, Special Adviser to the Chair-in-Office,Global Forum on Migration and Development (GFMD),SwitzerlandCatherine Jourdan, Director, Governance, Risk &Compliance, PricewaterhouseCoopers, USAEthan B. Kapstein, Chair in Political Economy, INSEAD,FranceFrederick Kempe, President and Chief Executive Officer, TheAtlantic Council of The United States, USAGürtay Kipcak, Director, Government Affairs, The Coca-ColaCompany, TurkeyMargery Kraus, President and Chief Executive Officer, APCOWorldwide Inc., USAAnil Kumar, President, Ransat Group, United KingdomKiyoshi Kurokawa, Science Adviser to the Prime Minister ofJapanSophie Lambin, Director, Global Thought Leadership,PricewaterhouseCoopers, United KingdomJoanne Linnerooth-Bayer, Leader of the Risk, Modeling andSociety Project, International Institute for Applied SystemsAnalysis (IIASA), BrazilPenny Low, Member of Parliament, SingaporeAllen Ma, President, BT Asia Pacific, BT Ltd, Hong KongSARBrunson McKinley, Director-General, InternationalOrganization for Migration (IOM), GenevaRobert Muir-Wood, Chief Research Officer, Risk ManagementSolutions, United KingdomRichard H. Murray, Managing Director and Chief ClaimsStrategist, Swiss Reinsurance America Corporation, USACharles Nelson, Global Head of Strategy and Markets’Development, Mercer Health and Benefits Business, Mercer(MMC), United KingdomTakeshi Niinami, President and Chief Executive Officer,Lawson Inc., JapanLucy Nottingham, Corporate Risk Consulting, Oliver Wyman(MMC), USAMarcus Oxley, Chairman, Global Network of Civil SocietyOrganizations for Disaster Reduction, Tearfund, UnitedKingdomAyca Paksoy, External Affairs Manager, Office of theChairman, Dogus Group, TurkeyKirsten Parker, Director of Analysis, Exclusive Analysis, UnitedKingdomNicola Patmore, Senior Research Analyst, Climate ChangePractice, Risk Management Solutions, United KingdomAydan Piker, External Affairs Specialist, Office of theChairman, Dogus Holding, TurkeyHans Björn Püttgen, Professor and Director, EcolePolytechnique Fédérale de Lausanne (EPFL), Switzerland


Danny Quah, Professor of Economics, London School ofEconomics and Political Science, United KingdomGeoff Riddell, Member, Group Executive Committee andChief Executive Officer, Global Corporate Business, ZurichFinancial Services, SwitzerlandVanessa Rossi, Senior Research Fellow, InternationalEconomics Programme, Chatham House, United KingdomMelinda Roth, Head of the Integrated Risk ManagementTeam, World Bank, USATamer Saka, Chief Risk Officer, Haci Ömer Sabanci HoldingAS, TurkeyArmen Sarkissian, President and Founder, Eurasia HouseInternational, United KingdomAnthony Scaramucci, Managing Partner, Skybridge Capital,USACuneyt Sezgin, Board Member, Garanti Bank, TurkeyDaniel Shapiro, Director, Harvard International NegotiationInitiative, Harvard Law School, USADennis Snower, President, Kiel Institute for the WorldEconomy, GermanyAndreas Spiegel, Vice-President, Senior Climate ChangeAdvisor, Swiss Re, SwitzerlandRory Stear, Executive Chairman, Freeplay Energy Plc, UnitedKingdomRolf Tanner, Director, Head of Political and Sustainability RiskManagement, Swiss Re, SwitzerlandAlper Ugural, Chief Risk Officer, Dogus Group, TurkeySinan Ülgen, Chairman, Centre for Economic and ForeignPolicy Studies (EDAM), TurkeyGündüz Ulusoy, Faculty Member, Faculty of Engineering andNatural Sciences, Sabanci University, TurkeyOya Unlü Kizil, Director, Corporate Communications, KoçHolding AS, TurkeyLevent Veziroglu, Executive Vice-President (EVP), Office ofthe Chairman, Dogus Group, TurkeySuna S. Vidinli, Chief Communications Officer, Calik HoldingAS, TurkeyDiego Visconti, International Chairman, Accenture, ItalyBob Ward, Director, Public Policy, Risk ManagementSolutions, United KingdomMark Weaser, Chief Investment Officer, Modern TerminalsLtd, Hong Kong SARMartin Weymann, Vice-President, Senior Risk Manager,Swiss Re, SwitzerlandCarolyn Williams, Development Manager, The Institute of RiskManagement, United KingdomPatricia Wouters, Director, UNESCO Centre for Water Law,Policy and Science, University of Dundee, United KingdomSelcuk Yorgancioglu, Executive Director, Abraaj Capital,United Arab EmiratesLinda Yueh, Fellow in Economics, University of Oxford,United KingdomSimon Zadek, Chief Executive, AccountAbility, UnitedKingdom

Internal reviewers

A particular note of thanks to Miguel Perez, Manager IssueMonitoring, Strategic Insight Team, for his input and guidanceon the Global Risks Perception Survey

In addition, the project team expresses its gratitude to thefollowing colleagues from the World Economic Forum fortheir excellent advice and support throughout the project:

Jennifer Blanke, Director, Senior Economist, Head of theGlobal Competitiveness NetworkMatthias Catón, Knowledge Manager, Global AgendaCouncil; Global Leadership FellowBrindusa Fidanza, Senior Project Manager, EnvironmentalInitiatives; Global Leadership FellowChristoph Frei, Senior Director, Head of Energy IndustriesLena Hagelstein, Programme Manager; GlobalLeadership FellowRandall Krantz, Associate Director, Environmental InitiativesJohanna Lanitis, Project Associate, Energy TeamCarina Larsfälten, Associate Director, Governments andStakeholdersSylvia Lee, Associate Director, Environmental Initiatives;Global Leadership FellowOksana Myshlovska, Knowledge Manager, GlobalAgenda Council; Global Leadership FellowMartin Nägele, Knowledge Manager, Global AgendaCouncil; Global Leadership FellowGareth Shepherd, Associate Director, InvestorsCommunity; Global Leadership FellowFabienne Stassen Fleming, Head of Knowledge Capture,Global Agenda CouncilsDominic Waughray, Senior Director, Head ofEnvironmental Initiatives

The World Economic Forum is an independentinternational organization committed to improvingthe state of the world by engaging leaders inpartnerships to shape global, regional andindustry agendas.

Incorporated as a foundation in 1971, and basedin Geneva, Switzerland, the World EconomicForum is impartial and not-for-profit; it is tied tono political, partisan or national interests.(www.weforum.org)

GlobalRisks2009 - World Economic Forum · ThisworkwaspreparedbytheGlobalRiskNetworkoftheWorldEconomicForum. World Economic Forum 91-93routedelaCapite CH-1223Cologny/Geneva Switzerland

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