Global Risks Report 2023 shows why today’s crisis is an opportunity to build a green economy

The world is experiencing multiple crises, but every crisis can also contain an opportunity. The key to identifying those opportunities is to look over different time frames. Can we find ways to leverage the urgent crises we face today into opportunities to address longer-term challenges?

The newly published Global Risks Report 2023 helps to inform this question by framing risks over three-time frames: it surveys experts on what they think are the biggest risks the world faces this year, over the next two years and then over the next ten years. This year’s top-rated risk is the energy crisis, followed by the cost of living, inflation and food supplies. Taking a ten-year view, the top risks look very different. Climate change mitigation tops the list, followed closely by climate change adaptation and two other closely related risks – extreme weather events and biodiversity.

There is a clear link between the top-rated risks in both categories: the current energy crisis has caused a short-term setback to our long-term climate mitigation efforts.

Early in the COVID-19 pandemic, it briefly seemed that the energy transition was on course to be accelerated. As global economic lockdowns led to lower demand for fossil fuels, we seemed to be seeing a glimpse of our Net-Zero future. But as the immunisation of populations reduced the need for lockdowns, the world‘s carbon emissions soared again, despite recent progress in the deployment of renewable energy technologies and electric vehicles (EVs). Then, in the last year, the war in Ukraine further derailed the Net-Zero ambition of many countries as they scrambled to find alternatives to importing Russian gas, with many economies expanding fossil fuel use, revealing that progress on reducing fossil fuel demand has been too slow.

Often the most readily available alternatives have been fossil fuels, despite the advances in renewable energy. The EU, for example, is on course to spend over €50 billion this winter on fossil fuel infrastructure and supplies. Demand for coal is estimated to have reached an all-time high in 2022 – confounding hopes that the previous high, in 2013, would never be repeated.

Zurich Insurance Group’s climate mitigation scorecard shows how dramatically progress on climate mitigation has stalled. It tracks 12 indicators that influence mitigation, grading them in annual assessments as red, yellow or green. While in 2021, four of the 12 were green and just one red, in 2022 the reverse was true. Three indicators – fossil fuel subsidies, carbon dioxide emissions and energy demand and efficiency – turned from green to red in just one year.

Continued disruption to energy supplies seems likely. Global Risk Report 2023 respondents rank geoeconomic confrontation as a top-three risk over the next two years and more than half expect the next ten years to be marked by persistent crises or multiple shocks, rather than a return to relative stability. The attack on the Nord Stream 2 pipeline, along with Russia’s repeated targeting of Ukraine’s energy grid, risks normalising the destruction of energy infrastructure as part of conflicts.

The energy crisis we face in the short term, however, represents an opportunity to give new momentum to the energy transition we need in the longer term. While burning more coal is often the cheapest and easiest response, other technologies – from renewables to nuclear to hydrogen – can promote both the Net-Zero transition and nations’ energy security. High energy prices can also force a renewed focus on deep energy efficiency. Yet, there is a frustratingly low level of trust in the effectiveness of price signals in today’s politics. Whilst it is clear that adaptation will be painful, the end of the era of cheap carbon energy is inevitable.

We need leaders to make clear to the public the connection between mitigating climate change and building resilience to geopolitical instability. While the difficult macroeconomic situation makes it challenging to step up the investment needed to drive forward clean energy projects, the current crisis presents an opportunity that must not go to waste.

And, that is not the only potential opportunity to leverage short-term crises into opportunities to accelerate longer-term reforms. Two of the four top-rated risks for 2023, food and energy systems, are closely interconnected with all the top four risks over a ten-year timeframe – climate mitigation, adaptation, extreme weather and biodiversity – in multiple complex and overlapping ways.

Often attempts to balance priorities involve difficult trade-offs. For example, increasing food security and conserving biodiversity can come into conflict: the positives and negatives of alternative land-use options need to be balanced constructively. However, some nature-based climate solutions offer multiple wins – interventions, such as restoring mangroves and natural forests, can benefit climate mitigation not only through maintaining natural carbon sinks but also by adapting to extreme weather risks, such as storm-surge flooding, while also providing nutrition and employment options for local communities.

The Global Risks Report 2023 shows that we need to get behind climate adaptation measures now. No one said it was going to be easy, but the long-term cost of failing to adapt is monumental compared to the temporary pain of pursuing adaptation in the short term. We can’t afford to sleepwalk into the climate crisis. This is why Zurich is calling for collaboration to develop better indicators for the voluntary carbon market.

Often in life we need to take one step back to take two steps forward. Sometimes – as with the current energy crisis – the step back is forced, but it still presents the opportunity to move forward. As we enter 2023, we must not fail to take those forward steps.