I trekked over to New Hampshire — or at least it seemed that way after the amount of time it took to get to the very interesting session titled Global Risks, Local Impact: The View from Davos. Speaking on this topic were Brian Elowe and John Merkovsky, both with Marsh, who spoke about the World Economic Forum’s (WEF) Global Risk Report 2010. If you’re asking yourself, “Self, what does it take to be a global risk?” Then I have the answer. It takes:

• Global scope
• Cross-industry relevance
• Uncertainty
• Economic impact
• Public impact
• Multi-stakeholder approach

The World Economic Forum also defines five types of risk: societal, geopolitical, technology, economic and environmental. In analyzing the global risks for 2010, the WEF focused on three key themes:

1. A higher level of systemic risk (the financial crisis, for example) and what the Elowe and Merkovsky referred to as a “retrenchment from trade”
2. Slow failures or “creeping risks” or risks that manifest themselves over a long period of time (for example, population growth and natural resources shortage)
3. Global governance gaps or a lack of governance to address risk

“If countries go to war over oil, imagine going to war over water.” — Brian Elowe, when discussing the issue of water scarcity.

The WEF report stated that the biggest global risk is asset price collapse considering that there are a significant number of asset bubbles that still exist (such as housing). Following closely behind — the second biggest global risk is the Chinese stock market because of its artificially high prices and uncertainty around exchange rates and regulatory regimes.

The third most significant global risk is the ongoing fiscal crisis. The WEF is concerned with all the debt that countries are accumulating, stating that some areas are nearing debt of 100% of their GDP.

Also of concern is chronic disease and the increasing problem of the general health of society considering the sedentary lifestyle and less nutritious foods that have become popular.

The report also delves into risks that are emerging, such as the increase in global crime networks.

So how can companies apply the knowledge of these risks to their business?

• Test assumptions in underlying strategic plans and capital investments
• Understand and monitor the complex and changing interrelationship between systemic risks
• Identify emerging opportunities within emerging trends or events

Both Elowe and Merkovsky stressed the importance that companies and risk managers take a long-term view when analyzing risks, suggesting firms take a 10-year (or more) approach, instead of the usual two-to-three-year corporate risk assessment.

All in all, a great session!

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