Risks on Earth, in space and in the metaverse - Radio Davos on the Global Risks Report 2022

Climate change is the number one risk we face as a species, according to the World Economic Forum’s annual Global Risks Report. In this episode of Radio Davos, we look at what a ‘disorderly transition’ to net-zero might look like, and also examine the new risks posed by rapidly changing technology.

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This is a transcript of the episode:

Robin Pomeroy: Welcome to Radio Davos, where we're talking about risks. After two years of COVID 19, most people would agree that the world maybe underestimated the risks posed by a new virus causing a pandemic. So what are attitudes now? Every year, the World Economic Forum conducts a global Risks Report and asks thousands of people from the Forum's huge network in academia, business, government and civil society what they consider to be the biggest risks we all face in the short, medium and long term. You can read the report on the World Economic Forum website and watch a presentation of its findings.

The report was produced with the participation of Marsh McLennan, SK Group and Zurich Insurance Group. On the show. I'm joined today by two experts in the field of risk. Later on Carolina Klint, Risk Management Leader, Continental Europe, Marsh, joins me to talk about risks posed by advances in technology. But first, this is Peter Giger, Group Chief Risk Officer at Zurich Insurance Group.

Robin Pomeroy: Hi Peter, how are you?

Peter Giger: Hey, good afternoon, Robin. I'm good. How are you?

Robin Pomeroy: Very well, thanks. Thanks for joining us. Let's just get some of the headline numbers. Let's listen to Saadia Zahidi, who's a managing director at the World Economic Forum, at the launch of the Global Risks Report, where you also were.

Saadia Zahidi (speaking at the presentation): First off, it's very clear that this confluence of all of the factors that have come together, all of the challenges that we're currently facing, are leading to a fairly pessimistic outlook. Eighty-four percent of the people that responded to the survey said that they were either worried or concerned about the outlook for the world. Less than 4% were optimistic about the outlook for the world.

We asked people to look back at the last two years of the pandemic and identify which are the risks that became worse since the COVID 19 crisis started. And what's very clear is that, above everything else, social cohesion has eroded. There are deep concerns about livelihood crises. There are concerns about climate action failure, concerns about mental health deterioration, and then, finally, concerns about extreme weather. These five really stand out.

We also asked people when some of these risks will become a critical threat to the world. And, in the next couple of years, there continues to be deep concern around both the climate side of things and the social side of things. So: extreme weather, livelihood crises, climate action, failure, infectious diseases - of course, the pandemic has not gone away. And then, of course, social action cohesion. On the other hand, if you look at the next sort of 5-10 years out, the top five are all green. So: climate action failure, extreme weather, biodiversity loss, natural resource crisis, and human-made environmental damage.

Somewhere in the middle of this, the next 2-5 years out, there's concern about climate issues, there is concern about the social issues, but there's also concern around cybersecurity failure. There's also concern around geoeconomic confrontations. So you're starting to see quite a mix of things that are the bridge between the short-term timeframe and the longer term.

Robin Pomeroy: Saadia Zahidi of the World Economic Forum talking about some of the headline figures from the report. But here with me now is Peter Giger of Zurich Insurance. Peter, I'd like to focus on what you wrote about for the World Economic Forum's agenda in a blog that we've published. The headline was 'The 'disorderly' net-zero transition is here and it’s time to embrace it'. It's a very curious headline. A curious idea. Could you give us an idea what your thesis is.

Peter Giger: We're starting on the assumption that turning the world economy into a carbon neutral economy is anything but an industrial revolution, as we've seen it with digitalisation and many other instances. A development of that magnitude of complexity is very unlikely to be orderly and smooth. And so I think it's best to upfront accept that it will not be a walk in the park, but there will be hiccups, there will be stresses. And, by the way, there will be many unknowns, in the positive and negative sense. Just take digitalisation as an example. Thirty years ago, we saw that coming before anyone was talking about smartphones even. And today these smartphones rule the world. And so we expect the same thing to happen in decarbonisation - new technologies will kick in to shape the world by 2050, which we don't know even today.

Robin Pomeroy: This goes to the heart of what this risks report identified as the top risk and in fact, the top five risks - as we heard from Saadia there - are environmental, be that climate change, biodiversity risk, or other forms of environmental damage. We're meant to limit global warming to 1.5 degrees Celsius. Instead, we're heading for 2.4 degrees Celsius and even in the most optimistic scenarios we're only going to achieve - by what's on the table at the moment, by the politicians - 1.8 degrees Celsius. We have to get net zero - basically pump no more greenhouse gas into the atmosphere by 2050. That means halving it this decade. It sounds quite neat when you put it like that. But when you actually look at how on Earth you can possibly achieve that. You're suggesting this idea that it will ever be neat, certainly at this late stage in the game, is just pie in the sky. That's kind of the negative side. On the positive side, you seem to suggest, OK it might be disorderly, but maybe we can still achieve it. Does that mean you're kind of optimistic in some way?

Peter Giger: First, let me just make the point that the world ultimately will become carbon neutral because the energy resources from carbon are finite. I mean, that's well known and understood. Yes, they would last beyond 2050. So the only question is whether we destroy the planet before we run out of carbon sources. Not very smart as a scenario, but unfortunately it is still possible that we will end there. The point that we would actually suggest in terms of the transition is that the longer we wait, the more clear the negative implications of the ongoing warming will come through, and the higher the pressure will be to scramble - to still get there or thereabout. The more time you have to prepare for something in life, the more likely you are to to get there smoothly. And that's what what we see here in the transition path. And there's a major risk. We have seen a number of instances where energy prices have reacted to shock developments, and how massive consumer responds to those shocks were, because then people become victim to the circumstance. You don't change your gas heating overnight. Planability and the time horizon, I think, is probably the most important responsibility of politicians to give the world the steer and the guidance for a smooth adaptation.

Robin Pomeroy: And you talk about the current energy price spikes, and you're saying there could be plenty more of those along the road in the coming years and decades?

Peter Giger: Well, the easiest way to stimulate the economy for a carbon neutral future would be to give reliable price signals that the price of carbon will increase - not today, but into the future - because that would immediately redirect investments. And by the time the actual price increases, the impact will be much smaller. Now, not taking that opportunity will likely lead to a scenario where price increases will need to be forced through with little warning, and that will have all the negative repercussions.

Robin Pomeroy: Oil and gas prices historically fluctuate massively, don't they, sometimes over very, very short periods? What you're saying is, if carbon is priced in to energy prices gradually, it would be a bit more of an orderly transition. We would know - instead of facing a doubling of gas price or whatever - there would be some kind of a more orderly transition.

Peter Giger: Yes, and a period of elevated oil prices has also demonstrated how quickly the economy reacts in its investment behaviour. Fleet consumption of new vehicles actually came down. It responded to a higher oil price. It's a clear indication that the economic logic works and one wonders why it is not actually better employed in the process.

Robin Pomeroy: But as soon as those prices crash down again, everyone is enjoying cheap energy. That's what's happened over the last decades.

Peter Giger: Indeed. But it clearly shows that the mechanism works. So the question is, do we have the political will to deploy them in the most effective way, which would be in the medium to long term play?

Robin Pomeroy: You've managed to cram into your blog lots of very interesting points in an admirably short space. Some of the impacts of a disorderly transition - obviously, there's the environmental impacts. But you've got things like, OK, somehow chaotically, we're going to move away from fossil fuels very quickly. We have to move away from fossil fuels quickly. But if it's in a chaotic way, you say: "more than 8 million jobs could be lost in the fossil fuels sectors alone by 2050. You can also expect an impact on transport, agriculture and heavy industries [and] far-reaching economic and social implications."

It's pretty serious stuff, isn't it?

Peter Giger: Well, yes. History has shown that any industrial revolution has destroyed a lot of jobs. If you were a stable grow, combustion engines were not welcome. But every industrial revolution has created more jobs than it destroyed. For me, that's a core source of optimism. The world was better off after the painful process every time. And who would want to go back to the days before computers and to the days before combustion engines? At the end of the day, I'm proposing the optimistic perspective on it, to allow for the change. And I think we see that as one of the risks is, especially in Western Europe, there is what I would call structural conservatism. And the pandemic has demonstrated that. We've seen many countries where there were less business failures during the pandemic than in regular years, which is totally counterintuitive. And the ability to let businesses fail, I think, is critical in a transition process.

Robin Pomeroy: So you say we risk a chaotic and then you put 'or disorderly' transition. It looks like you've chosen this word 'disorderly' to be a little less scary than 'chaotic'. And it also reminds me of this this word 'disruption', which in Silicon Valley is a good thing, right? 'Let's disrupt the economy'. But as we've mentioned, some of those disruptions or some of that disorder could be very, very painful for a lot of people. So where are the opportunities then in this disruptive or disorderly transition?

Peter Giger: Well, first, the world will not become less energy hungry, I believe so alternative sources of energy will need to be developed. That is a business in itself, and we've seen with solar panels how that could go, and that's that's one source. The world will still want mobility, so how to provide mobility? There will most likely be structurally very different answers than today - 20, 30 years out. And all of this means new business opportunities, whereas old business opportunities will disappear. There is the famous examples in history - nobody wants to be Kodak. And then still businesses fail to get on the train and they become Kodak, they become obsolete. And I think from a business perspective, that's the key. Everyone needs to think about how they can stay relevant in a carbon neutral world. Transportation is a classic example of that. Currently, a carbon hungry sector, but that's not that's not written in the book. There are other alternatives.

Robin Pomeroy: It's a fascinating proposal. But Kodak - the thing there was - suddenly digital cameras were around and people want it instantly, and the idea of sending a film off and getting it developed - no one wanted that anymore. When it comes to fuel, if you burn a fossil fuel, you're going to get heat. And if you get that, you can get electricity, and it might be that it's very cheap, particularly if the richer world is moving away from it. A lump of coal will still be a lump of coal unless it's banned or in somehow priced out. Somewhere in the world someone will want to burn that coal for the benefit it has. An old film camera is only of any use in a museum anymore, but coal and oil and gas will still provide heat and light and electricity for decades to come,

Peter Giger: Which is why it is very important to put the fair price tag against the impact the burning has. And I think these price signals would be much more powerful than ultimately having to ban it. That's the other scenario - that you ban certain things. It's the exclusion approach, the regulation approach. I think that's a defensive approach. And as always, in life defensive approaches are a lesser solution from a wealth-creation perspective.

Robin Pomeroy: To talk about aspects of the Risks Report, I'm joined by risk Carolina Klint, Risk Management Leader, Continental Europe, at Marsh, which is a company that provides insurance and risk management services. Carolina, thanks for joining me.

Carolina Klint: Thanks for having me.

Robin Pomeroy: You wrote a very interesting blog for the World Economic Forum's Agenda website. Read the headline : 3 global risk areas that demand cosmic action: Space, the metaverse and Planet Earth. You couldn't have picked three sexier top headlines there. Why did those grab you from the report?

Carolina Klint: Thank you. Yeah, I think the reason why I grabbed those is because it's very forward looking. And I think the whole point with the Global Risks Report is really [to] help business leaders, governments, really anyone who's interested in taking a long-term view on the constantly evolving risk landscape and what is on the horizon. And when I looked at the report, I thought, OK, let's pick three that are sort of very forward looking and might not be on the agenda for many. And I thought that was quite interesting.

Robin Pomeroy: We've talked a lot over the last two years of we weren't factoring in much pandemic risk. We were all aware of the risks. Of course the experts on pandemics were telling us for years: 'You've got to prepare for a pandemic.' And then it could be argued we didn't do enough. But the pandemic itself, you argue in your article, has made certain other things more of a risk, such as technology, because, you say, we've become so much more reliant - you and I are talking now on a kind of a Zoom platform - millions - billions of people probably - have done that much more in the last two years and they've ever done before. And that's just one element of how we're much more reliant on technology. Why has that increased the risk, do you think?

Carolina Klint: Well, I think first of all, we were already becoming highly dependent on technology before the pandemic. But then over the past two years, we've seen such an accelerated digital transformation, both across public and private sectors. So industries have undergone rapid digitalisation, workers have shifted to remote working where possible, and the platforms and devices facilitating this change have multiplied. And I think many companies are still looking to further rethink their business offerings and the way they work. There's even more pressure than before to continue digitising and automating. And what we have to recognise is that this has many times been built on the backbone of ageing technology infrastructure and sometimes insecure network protocols. And this, in turn, has led to supply-chain disruptions, greater exposures to cyber attacks. And it's just opened up more avenues of attack for threat actors. And what we've seen the past two years is that ransomware has been that particular signature cyber threat. And, as is pointed out in the Global Risks Report, to the point that we now see ransomware as a service, even.

Robin Pomeroy: In what way is ransomware a service?

Carolina Klint: Ransomware as a service is basically a tool for criminals that don't have their own capacity in terms of expertise or access to digital malware. They outsource it. It's incredible, right?

Robin Pomeroy: And the knock-on effect obviously is that that increases the risk. There's more ransom demands. There's more hacks into people's computers or companies' computers. And you note in your blog that the insurance price, if you want to insure against this, has gone up by 204% in a year and that if that keeps going on, it won't be many years before it's completely unaffordable. What is the outcome of this. How are companies going to deal with this massively rapidly increasing risk?

Carolina Klint: It is a rapidly increasing risk - you're absolutely right. Cyber attacks are not new, but they continue to intensify. And that, of course will have cascading effects. I think there are a lot of things that a company can do to improve cyber resilience. But at the same time, we're at the point now where companies that are quite mature in their cyber risk mitigation plans are being rewarded by insurance carriers and afforded, allowed to have that capacity accessible to them. While companies that are still in their infancy and struggling with finding ways of mitigating cyber risk might actually not find the carrier willing to accept the risk. So that's where we are now in terms of the development of this risk, which is, of course, a huge challenge for many companies.

Robin Pomeroy: On Radio Davos, a few months ago, we spoke to the head of the US Homeland Security on cybercrime and ransomware, and he really pointed out the fact that companies are paying ransom - vast amounts. Who are we to tell them not to if they've got to unlock their business which has been locked up? But by doing that, there's a constant inflation then to the ransom that can be demanded. Criminals know companies are going to pay up.

Part of the problem, then, of these increased risks due to our increased reliance on technology is this old infrastructure. Another example of that that you give in your article is about the metaverse, probably one of the most trending words of the last year. Again, you say, if the metaverse develops without giving a thought to what the risks of that might be and how we might manage the risks of it, it could be quite a messy place. Could you expand on that a little bit? Maybe we should think about for anyone listening to this who's still not quite sure what the metaverse is, what is it?

Carolina Klint: Yeah, that's great, actually, that we start there because I think we should talk about what the metaverse is first. And I think the easiest way to explain it is this- the concept the metaverse is that through history we have constantly been moving towards more and more engaging mediums. So we've gone from text to photo to video. And the metaverse is what comes next. So it's an internet that you're not just looking at through a screen, but that you're actually inside of. So the metaverse is a shared, virtual, three-dimensional world, or even worlds, that are interactive, immersive and collaborative. So that's how I would explain it, if that makes sense.

Robin Pomeroy: Why would being in the metaverse be any more risky than, you know, sharing messages on on a social media app or something? What would be the additional risks?

Carolina Klint: Yeah. So when the metaverse emerges, what will happen is that it will even more tightly connect individuals, businesses and governance, and we will see an increase in digital tools and platforms. So that in turn will expand the number of critical failure points for the global internet, and it will also provide cybercriminals with many more touch points to exploit. So I think that's part of it, but it would also create greater opportunities for disinformation, fraud, deep-fakes and, of course, it also raises questions around access and data privacy. So there are actually a whole host of challenges that come with this development.

Robin Pomeroy: The deep-fakes one is really interesting, isn't it? Because already, if you're bombarded, as some of us are sometimes, by trolls, you're never sure that's a real person or some kind of bot. If you are yourself inside, you're an avatar or something inside this metaverse, and people are coming up to you inside it, they could look just like your best friend, couldn't they, or someone famous - and it's not really them at all. It feels like science fiction, and I wonder how many years it will be until we'll listen back to this and it'll sound - 'well, why is that strange?' You know, this could be an everyday occurrence, couldn't it in x amount of months' or years' time.

Carolina Klint: So this change and development might actually happen sooner than we think. And I also think the pandemic has sort of accelerated it. Because if you think about the switch to remote working and as we continue looking at what the workplace in the future will look like, many companies are now looking at hybrid versions, and I think the metaverse can sort of bridged the gap in a way and maybe it will be sort of the place we actually work together in the future. So it's quite exciting to see how this develops.

Robin Pomeroy: Another massively trending issue that you've identified in your article is, of course, space, with the famous Don't Look Up. The risk from a meteor strike, which is what that film is about, is a real one. But the risks you're looking at are far more tangible and far more likely, aren't they? What are the risks we're facing in space?

Carolina Klint: Not that long ago, we really thought of space as the final frontier, and it is so accessible now. In 2021, we saw a record number of 145 orbital space launches globally, and I think the number is 70,000 launches that are planned for the next decade.

Robin Pomeroy: That like two or three a week or something at current rates - launches into space, which used to be something a generation or two ago, you'd gather around the TV to watch a launch into space. Now it's just, 'Oh, we're going to send up a little satellite. Here we go'.

Carolina Klint: That's right. And space tourism finally got off the ground. We saw several private sector launches, right? And in addition, the first commercial space station was announced, and it looks like that will be operational in 2024. So it's all really exciting, right? But at the same time, we are now dealing with dated space governance frameworks which are coming under considerable pressure, so definitely some growing security concerns, and then, of course, the threat of harmful space debris, and, to your point, this is a real risk. There is actually a quite recent example where an anti-satellite weapon test left a cloud of debris in orbit that was threatening not only the International Space Station, but also other vital satellites. And what will happen if a satellite gets hit is that that will impact and put global communication as we know it at risk. So what we have to realise is that our planet is surrounded by this literal junkyard of human-made space debris: nuts and bolts, broken satellites, empty fuel tanks. And given the fact that these objects move around the Earth at more than 18,000 miles an hour, that is seven times the speed of a bullet, these objects pose a serious threat and also could actually pose an environmental hazard if they fall to Earth without burning up on re-entry.

Robin Pomeroy: And the risk report itself, I suppose, might help businesses confront these risks.

Carolina Klint: Oh, absolutely. I think the Global Risks Report is a brilliant resource for businesses as they navigate both the ongoing pandemic stresses, but also as they look at the changing risk landscape and what is on the horizon. Because it isn't enough to consider the day-to-day risks of doing business. We're at a point now where planning to be resilient in the face of the unexpected is really critical.

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