GLOBAL RISKS

1. GLOBAL RISKS

2. Types of Global Risks • 1. Economic [extreme volatility in energy & commodity prices, systemic financial failure, hard landing of an emerging economy] • 2. Environmental [rising greenhouse gas emissions; species overexploitation, extreme weather, failure of climate change adaptation] • Geopolitical [Diffusion of weapons of mass destruction; global organized crime and terrorism; pervasive corruption]

3. GLOBAL RISK • Societal [Food shortage crises, water supply crisis, pandemics, unsustainable population growth, systemic financial failure] • Technological [Cyber attacks, climate change mitigation, mineral resource supply vulnerabilities – rare earth, unforeseen consequences of nanotechnology] • Major risks (Fig 2) systemic financial failure; water supply crises; failure of climate change adaptation; diffusion of weapons of mass destruction; food shortage.

4. Global Risk • Global risk is often ignored in current enterprise risk management • Three types of major risks - taxonomy: • A) Preventable Risks: mistakes by employees and breakdowns in processes • B) Strategic: a firm undertakes voluntarily having weighted against potential rewards • C) External risks: complex and go beyond a company’s scope to manage and mitigate

5. Resilience • Resilience: ability to adapt and recover in the face of risks • X Factors from Nature: • 1. Runaway Climate Change: Is it possible that we have already passed a point of no return? • 2. Cost of Living Longer: covering the costs could be a struggle • 3. Rogue Deployment of geo-engineering: technology is now being developed to manipulate the climate – Could an individual or state use it unilaterally?

6. Resilience 4. Discovery of Alien Life: profound psychological, economic, defense, political, social implications Evolving Risk Landscape: a dynamic and evolving process In 2007 top global risks in terms of likelihood: asset price collapse; China economic hard landing; oil price shock; chronic diseases in developed countries.

7. Resilience • In 2013 Global Risks in terms of likelihood: rising greenhouse emissions; water supply crisis, mismanagement of population aging • The nature of global risks is constantly changing!

8. Resilience • Like a super storm, two major systems are on a collision course. The resulting interplay between stresses on the economic and environmental systems will present unprecedented challenges to global and national resilience! • The persistent global economic fragility continues to divert our attention from long-term solutions by limiting the availability of public resources.

9. The Changing Debate on Global Climate • In today’s increasingly multi-polar geopolitics it has become harder to reach and effectively international agreements on climate change mitigation. • Predictions of more than 3.5 degrees Celcius is likely. • Economic Losses: Hurricane Katrina ($125 bi; Thai floods ($30bi); European heat wave – 35,000 deaths

10. Climate Change • While there is no consensus on how fast and how much our climate is changing, the growing realization that some degree of climate change is inevitable is reflected in a shifting of the debate and how to adapt. • Possible Global Warming Impacts: • A) more intense storms, droughts, flooding; B) water supply threats; C) falling crops yields; D) ecosystems damaged; E) environmental migration more than 1 billion people, F) Environmental related conflicts

11. Climate • Complex systems such as the climate are non-linear by nature – chain reactions through the system are unpredictable and not directly proportional to the size of triggers. • How will we reconcile climate change mitigation and adaptation efforts with the desire for prosperity given current demographic trends?

12. Digital Wildfires in a Hyperconnected World • The global risk of massive digital misinformation sits at the centre of a constellation of technological and geopolitical risks ranging from terrorism to cyber attacks and the failure of global governance. • A hyperconnectd world could also enable the rapid viral spread of information that is either intentionally of unintentionally misleading or provocative

13. Digital Wildfires • Role of social media in the Arab “Spring” demonstrations (Egypt, Tunisia) and other “Springs” around the globe such as the Wall Street one. • Ex: United Airlines Breaks Guitar song cost the airline close to $ 180 million in shareholders value of United stocks. • Executives placed social media among the greatest risks their corporations face.

14. Turn Down the Heat • Present emission trends put the world plausibly on a path toward 4 degrees warming within this century. • No nation will be immune • Absolute warming will be largest in high altitudes • Sea level is likely to be 15-20% larger in the tropics, increasing aridity and drought

15. Global Warming • Overall the rate of loss of ice has more than tripled since the 1993-2003 period. • The 2012 drought in the US impacted 80% of agricultural land, making it the most severe drought since the 1950s. • Recent heat waves are likely to become the new normal summers • Ocean acidification – threats to coral reefs and for their dependent species!

16. Rising Sea Levels • Highly vulnerable cities in Mozambique, Mexico, India, the Philippines, and Vietnam • Small state Islands and river delta regions are also going to be deeply impacted. • Extremely severe risks for vital human support systems • In the Amazon forest fires could increase, drier condition in parts of North America, wetter condition in northern North America.

17. Flu-Conomics: The Next Pandemic Pandemic: the global financial damage can be devastating. 2003 SARS (Severe Acute Respiratory Syndrome) Asia Pacific carriers saw revenues plunge by $ 6 bi and US airlines by $ 1 bi Las Vegas saw major losses, AIG agents were not able to visit clients in Asia The biggest driver of the economics of pandemics is not mortality but risk aversion, as people change their behavior to lower their chance of exposure affecting consumption / manufacturing/stores/restaurants etc

18. Pandemics • 80% of Beijing’s hotels were vacant • Tourism to Singapore fell 70% • In our interconnected world, a farmer running a fever in China can reduce the income of a baggage handler in Frankfurt! • SARS only killed 916 people, losses of US$ 14.8 billion for the Chinese economy and reduced global GDP by $ 33 billion

19. Pandemics Costs • A yearlong outbreak could cause global GDP to fall by 0.7%, something bad as the 1918 Spanish flu could cut the global economy’s GDP by 4.8% and cost more than $ 3 trillion

20. Worldwide Threat Assessment • How quickly and radically the world and our threat environment are changing • Threats are more diverse, interconnected and viral than at any time in history • Destructions can be invisible, latent and progressive. • Shifts in human geography, climate, disease and competition for natural resources because they fuel tensions and conflicts. • The importance and urgency of intelligence integration cannot be overstated

21. Global Threats • A – Cyber: state and nonstate players are exploiting the internet to achieve strategic objectives, while many seek to increase their control over content in cyberspace. • Cyber threats: cyber attacks [disrupt, delete data] and cyber espionage [intrusions into networks] • Attacks on infrastructure – disrupting services, affecting supply chains. Attack on ARAMCO rendered more than 30,000 computers unusuable.

22. Eroding US Economic and National Security: foreign intelligence and security services have penetrated computer networks in the US • Information control and Internet Governance: online information control is a key issue among the US and other players. • Cyber influence in Iran, China, and Russia • Terrorist organizations have interest in developing offensive cyber capabilities. • Hactivists continue to target companies. Cybercriminals: selling tools via black markets

23. Terrorism and Transnational Organized crime • Attacks will remain part of these groups transnational strategy • Al-Shabaab – Kenya’s shopping mall attack • Transnational Organized Crime: drugs, facilitating terrorism activity, money laundering, corruption, environmental crime (illicit trade in timber, wildlife, and marine resources)

24. Natural Resouces: Insecurity and Competition • Competition and scarcity involving natural resources – food, water, minerals, and energy are growing security threats. • Food: volatility in global food prices, food security. • Water: risks to freswater supplies [pollution, climate change], water tensions between states, water shortages will impact economic performance and economic development of many nations in the next 10-15 years.

25. China’s Monopoly on Rare Earth Elements [REE] • REE are essential to civilian and military technologies • Important to the development of green technologies and advanced defense systems. • China will remain a dominant player in heavy REEs, important to defense systems. • Energy: shale gas in the US