Cost of living crisis emerges as the primary global risk

According to the World Economic Forum (WEF) Global Risk Report for 2023, the most significant global risk of the next two years will be the cost of living crisis.

The World Economic Forum (WEF) publishes an annual Global Risk Report, which provides an overview of the most significant risks that the world faces in the short to medium term.

The 2023 report is based on a survey of a diverse group of experts, including business leaders, academics, and representatives from international organisations.

The survey asks respondents to rate the likelihood and potential impact of various risks, and the report presents the results in a way that highlights the interconnections between different risks.

The report also includes analyses of the underlying causes of different risks and offers recommendations for managing and mitigating them.

The report covers various risk categories, including economic, environmental, geopolitical, societal, and technological risks.

You can download the entire Global risk report 2023 here.

The 2023 report does not make for pleasant reading. 

A particularly disruptive period in human history marked this decade’s first years. 

After the COVID-19 pandemic, a “new normal” was quickly disrupted by the outbreak of the war in Ukraine, leading to a series of new food and energy crises – reversing decades of progress. 

According to the report, the five greatest global risks of the next two years will be:

• The cost-of-living crisis 
• Economic downturn
• Economic warfare
• Climate action hiatus
• Societal polarisation (rich Vs poor)

Environmental and social crises will also define the next decade, driven by underlying geopolitical and economic trends.

The “cost-of-living crisis” is the most severe global risk over the next two years, peaking in the short term, suggests the report. 

“Biodiversity loss and ecosystem collapse” is also seen as one of the fastest deteriorating global risks over the next decade—all six environmental risks feature in the top 10 risks over the next ten years. 

Nine risks are featured in the top 10 rankings over both the short and the long term, including “Geo-economic confrontation” and “Erosion of social cohesion and societal polarisation”, alongside two new entrants to the top rankings: “Widespread cybercrime and cyber insecurity” and “Large-scale involuntary migration”. 

The report is a must-read for company directors. You can download the Global risk report 2023 and give it to your board’s risk committee.

Boards of directors of companies and other organisations typically establish risk committees to help ensure that the organisation manages risks effectively and consistently with its overall goals and objectives. 

The risk committee is a sub-committee of the board and generally has the following responsibilities:

1. Oversee the development, implementation and monitoring of the organisation’s risk management strategy, including identifying, assessing and managing risks that the organisation faces.
2. Provide guidance and recommendations to the board and senior management on risk management issues, including developing and implementing policies, procedures and controls to manage risk.
3. Monitor the effectiveness of the organisation’s risk management processes and recommend improvements as needed.
4. Review and report to the board on the overall risk profile of the organisation and any material changes to that profile.
5. Be responsible for the independent and objective evaluation of the effectiveness of the organisation’s risk management system.

The role of the risk committee is critical; it provides oversight and guidance on important risk management issues, helps to ensure that risks are identified, assessed and managed effectively, and protects the organisation from the potential negative consequences of unmanaged risks.

To learn more about risk committees and how boards work, you can take the Diploma in Corporate Governance. Download the course brochure below.