Request Free Trial
January 12, 2023

Climate inaction and social inequality among world’s worst short-term risks, says WEF

Latest Global Risks Report sparks warnings about the growing wealth gap fuelling tensions, amid governments’ inadequate response to climate change.

Climate action failure, extreme weather and biodiversity loss ranked first, second and third highest concerns in the World Economic Forum’s latest Global Risks Report. They were followed by social cohesion erosion, livelihood crises and infectious diseases.

Respondents to the WEF survey say the erosion of social cohesion is the risk that has seen the worst deterioration globally since the start of the pandemic. Around a quarter of the 124 countries surveyed, including G20 countries such as France and Germany, reported that ‘social cohesion erosion’ was a top 10 short-term threat.

Eighty-four per cent of experts are worried or concerned about the world, according to the report. 

Forty-two per cent of those surveyed predict that the next three years will be “consistently volatile with multiple surprises”, while 37 per cent think that the world will follow a medium-term “fractured trajectory” that will see the relative ‘winners and losers’ of the coronavirus pandemic diverge. 

Just 11 per cent believe that the global recovery will accelerate over the next three years.

Commenting on the report, senior insurance figures have warned that the cost of living crisis and a lack of food security could prompt social unrest, and have hit out at a misalignment between science and politics.

Marsh risk management leader for continental Europe Carolina Klint cautioned that “no country is immune to social erosion caused by lack of affordability and availability of basic necessities”.

“Cost of living pressures and food insecurity could provoke civil unrest and instability,” she added. 

Trust needs to be rebuilt

The WEF said the trend for surging commodity prices could stay volatile, owing to Europe-Russia tensions, the challenges posed by transitioning from fossil fuels, and supply chain disruption. It warned: “Higher prices and more expensive debt would impact lower-income households especially hard.”

The cost of living crisis has forced governments into providing subsidies to citizens and businesses in areas like utility bills. In the UK, households have received a £400 discount from their energy bills, phased over six months from October 2022, while businesses have also received reductions to their energy outlay.

World Bank research suggests that inequality is set to worsen. While the wealthiest 20 per cent of the world’s population are estimated to have recovered half their losses in 2021, the poorest 20 per cent lost 5 per cent more of their income.

“It is really about rebuilding trust in governmental systems and the public,” Marsh’s Klint said. “That’s a big and important part of it – but it’s not easy because governments are now battling and managing so many risks at the same time.”

Over 70 per cent of respondents rated current climate change mitigation as ineffective.

Zurich Insurance Group head of sustainability risk John Scott lamented the failure of the COP27 conference in November 2022 to agree a deal on phasing out fossil fuels. “We really just are not doing enough,” he said. 

“We’re living in a world right now where what’s scientifically necessary and what is politically expedient don’t match,” he added, pointing to the war in Ukraine and the resulting global food and energy crises.

Role of central banks

Central banks’ role in responding to the climate crisis came into focus on the day before the WEF report launch, after US Federal Reserve chair Jerome Powell said it would not become a “climate policymaker”.

Powell highlighted the importance of the monetary institution sticking to its statutory objectives and its independence. The Fed had “narrow, but important, responsibilities regarding climate-related financial risks”, which were “tightly linked” to its supervision of banks, he added.

Zurich’s Scott said: “It’s without doubt incredibly important that financial regulators and central banks in all countries have front of mind their key statutory tasks.”

He noted the systemic risks linked to the shift towards a low-carbon global economy and acknowledged the challenges this transition has posed for certain sectors and companies, which he said could have “a big systemic impact on the financial system”.

“It is important that central banks have an overview or a sight of some of those systemic consequences that really feed into their macroprudential responsibilities,” he added.

Photo credit: Getty Images

 



A service from the Financial Times