Ever wonder what might be round the next corner? Few of us predicted a global pandemic on the scale we’ve just seen. Not that many factored in a Russia-Ukraine conflict into their 2022 planning. There will always be ‘known unknowns’ but it helps to be better prepared. The reports that have been coming out of the Cambridge Centre for Risk Studies can, at least, help us understand the likelihood of shocks and the size of the economic impact if it happened.
The biggest potential shock to global GDP? According to the folks from Cambridge, it’s market crash, followed by interstate conflict. Weather, of course, is a huge risk, too, but flooding world-wide, for example, has a GDP risk about half that from interstate conflict.
The Cambridge report indicates cities at greatest economic risk, too. The city with most to lose (by GDP) is Tokyo, followed by Istanbul, both of whose biggest threat is interstate conflict. For London, New York and Paris it’s a market crash that’ll test their economic resilience most. The risk landscape is ever-changing, however. Critically, though, it is estimated that over half of the world’s risks and the subsequent hit to GDP can be mitigated by improvements in resilience.
The Cambridge Global Risk Index sets out the 22 most significant threats based on studies of events which have had historical social and economic impact over the last millenium. The threats are considered against 279 of the world’s leading cities. The report does not predict that crises and shock events will occur or that a particular city will be subject to a specified event. Each event is rare and unlikely. An analysis of the small likelihood of each shock occurring and an economic assessment of each city gives the average probability-weighted amount of lost GDP.
The 22 threats selected include a good number related to weather or the environment – flood, fire, storms, earthquake, tsunami, volcano – but a good number are anthropogenic – civil unrest, conflict, cyber-attack. Human pandemic is there too – up at number four threat, even though the report was produced in 2020. Look forward to the latest report on that one.
A top twenty of cities has been created, based on the size of economic impact (in GDP) against the likelihood of a threat occurring. As a general rule of thumb, large financial centres in the West in the top twenty are most impacted by market crash. Cities in the East are most impacted by tropical windstorms, though, one or two Asian and Middle Eastern cities are more at risk from conflict. Los Angeles is the only top twenty with earthquake as biggest GDP threat.
The Cambridge team have also created a taxonomy of business risk to aid definitions of threat – these are grouped into six Primary Classes - Financial, Geopolitical, Technology, Environmental, Social, and Governance.
The threats haven’t altered too much with market crash the biggest economic risk over the last few years. Social unrest is creeping up – witness protests in Hong Kong or Extinction Rebellion, for example. Cyber-attack is an increasing threat too as we rely more and more on technology. Undoubtedly, human disease will feature more prominently in future, as may antimicrobial resistance in years to come.
The Index doesn’t suggest what business or cities need to do to improve their resilience and reduce their GDP loss, though, the Cambridge team estimate that planning and preparing could half the losses seen. The data is useful for various business sectors to consider when planning ahead, particularly in finance, insurance, infrastructure sectors, but any business with a presence in any of the world’s leading cities may well find this information of value.
If you like tools and techniques that analyse data to assist planning then you may be interested in work that Resilience First is undertaking with colleagues in Resilience Shift, Arup and the Global Covenant of Mayors on climate resilience. Watch out for future reports on Climate Resilience Adaptation Framework and Taxonomy (CRAFT) or contact Alastair Brown on email@example.com for further information.