Do countries need chief risk officers for this scary world?

The American writer and humourist Mark Twain once wrote, “Prophesy is a good line of business, but it is full of risks.” Twain would no doubt be surprised by the risks outlined in the World Economic Forum’s (WEF) Global Risks 2023 Report, but skeptical of its predictions. The annual report, which draws on a unique survey of global political, business, and civil-society leaders, underpins much of the discussion at Davos this week. The 2023 edition considers the gamut of economic, environmental, geopolitical, societal, and technological risks in both the near term and over the decade ahead. Environmental factors form roughly half of the top 10 identified risks. Over the next decade, it is expected that the interplay between biodiversity loss, pollution, natural resource consumption, and climate change will make for a dangerous brew—an increased occurrence of zoonotic diseases and subsequent pandemics, a fall in crop yields and their nutritional value stressing global food supplies, growing freshwater shortages leading to potentially violent conflict, and ever more dramatic floods, storms, sea-level rises and erosion from the degradation of natural flood protection systems. Not surprisingly, the No. 1 short-term risk globally in the WEF’s latest report is the cost-of-living crisis, which is hitting those who can least afford it the most. Supply chain problems, exacerbated by Russia’s invasion of Ukraine, have impacted food and energy prices globally. Continuing disruptions and further entrenchment of inflation expectations could spell more interest rate hikes and the risk of a more prolonged economic downturn, particularly for heavily indebted countries, companies, and households. In a related WEF survey of global chief economists, two-thirds expect a worldwide downturn this year. Major short-term risks also included geoeconomic confrontation, interstate conflict, and the erosion of social cohesion. Sanctions, trade wars, investment screening on national security grounds, exclusionary industrial policies, and tech export prohibitions are all ramping up around the world. Interstate conflict is a reality in the brutal Russian invasion of Ukraine, and heightened tensions amplify this risk on Russia’s borders with Europe, the Korean peninsula, and the Taiwan Strait. Geopolitics may increasingly trump economics, leading to de-globalization and higher costs to consumers. Societal polarization is a real and present danger. The share of the world’s population living in autocratizing countries has jumped from five per cent in 2011, to 36 per cent in 2021. Misinformation and disinformation are, together, a potential accelerant to the erosion of social cohesion as well as a consequence. Social capital is being eroded, and communities are fracturing. In our digital world, data is collected and individuals can be monitored and targeted by governments and private-sector firms, often without adequate anonymity or consent. The growing concentration of data in the hands of a small number of tech titans is forcing some governments to act. But getting the balance right between the potential harm of privacy loss against the benefits to the innovation of emerging technologies is not going to be easy—especially in a world of splintered regulation. Developing countries, many of whose governments lack the fiscal capacity to help their citizens, will be particularly vulnerable to high inflation and a global downturn. With rising interest rates and depreciating currencies relative to the U.S. dollar, sovereign debt defaults among developing countries—a rarity in recent years—could rise significantly and further rattle global capital markets. Canada’s top five risks over the next two years, as identified by the WEF report, are, in order: the cost-of-living crisis, a debt crisis, rapid and/or sustained inflation, the failure of climate change adaptation, and an asset bubble burst. What a difference a year makes: the cost-of-living and asset bubbles didn’t even register last year. Anyone who has been to a grocery store needs no convincing that the cost-of-living and inflation risks are already a reality—as CTV News correspondent Siobhan Morris underscored recently with a tweet of a photo of a pack of chicken being sold at a Toronto Loblaws for nearly $27 a kilogram. No wonder Canadian food banks and food charities forecast a 60 per cent increase in demand this year. How do we better prepare for tomorrow’s world, which faces a cascade of risks—some eerily familiar from times past such as inflation and big power confrontations, and others that are wholly new such as cyberwarfare, de-globalization, and interconnected environmental shocks. Better and more sophisticated risk monitoring is essential, particularly at international institutions, given the deep global interconnectedness of risks today. But it will not be sufficient. Here governments can learn from the banking world, where the chief risk officers stress test critical systems under various risk scenarios, run extensive foresight exercises, and map interconnections among potential risks. Canada could lead by naming a Chief National Risk Officer who would take a whole-of-government perspective and a whole-of-society view to identifying risks and possible mitigation strategies. As recent airport and airline disruptions have shown, there is plenty of room to up our game when it comes to national preparedness and resiliency. Kevin Lynch was clerk of the Privy Council and vice chair of BMO Financial Group. Paul Deegan was a public affairs executive a BMO and CN Rail. The Hill Times