From 1-in-100 to emergency: Climate change a ‘critical blind spot’ that threatens businesses

WEF Global Risks Report – environmental risks take out top five

The World Economic Forum (WEF) recently released the 15^th annual edition of its Global Risks Report. The report charts perceptions of economic, environmental, geopolitical, societal and technological risks – both their impact and likelihood – among representatives of business, government and civil society. You can read past Aither analysis of the report here.

In 2020, for the first time ever, one category – environmental risk – occupies the top five spots on the list of risks in terms of likelihood. According to the WEF, ‘The near-term impacts of climate change add up to a planetary emergency that will include loss of life, social and geopolitical tensions and negative economic impacts’.

This is a marked shift from WEF’s reporting on perceptions of risk just ten years ago. In 2010, environmental risks occupied the bottom-left quadrant of the severity-likelihood matrix, with the top-right quadrant dominated by economic risks. These two categories of risk have effectively swapped places (relatively speaking) over the past decade.

According to the WEF, however, there is at least one influential cohort in society for whom environmental risks are yet to seriously register as a threat: business leaders. In its 2020 report, the WEF notes:

Aside from a number of vanguard first-mover champions, most companies… appear ill-equipped to address climate risk. Many do not yet quantify physical climate risks in their direct operations and supply chains, and those that do are likely to be underestimating them significantly. In the World Economic Forum’s survey of business leaders [Regional Risks to Doing Business Report, released in October 2019], none of the top 10 risks globally are environmental, suggesting a critical blind spot.

First movers can benefit from understanding and responding to water risks and opportunities

Water-related risks are one type of environmental risk that businesses may be underestimating or ignoring (though WEF now classes ‘water crises’ as a societal risk, ranking 8^th in terms of likelihood and 5^th in terms of impact). And while this frames the issue as a problem, it is just as correct to suggest that many in global business are missing out on a substantial opportunity to move ahead of the pack, adapt and thrive.

To address this ‘critical blind spot’, the onus is now more than ever on individual businesses to improve their resilience and profitability through planning, investment and operational decisions that reflect the value of water to the business and to other stakeholders within the water system. Benefits for businesses that understand, and respond to, water risks and opportunities include:

• Improved reliability of water supply and resilience to water stress
• Increased investor confidence in the value of the business
• Financial savings from innovation and reduced costs
• Enhanced corporate social responsibility and licence to operate
• Reduced conflict and improved relations with stakeholders
• Improved ability to meet regulatory, disclosure and reporting obligations
• Leveraging of unused or underutilised water assets

Critically, water is a shared and finite resource, and companies can rarely eliminate risks, or realise all of these benefits, through unilateral action. Understanding the cumulative impacts of water use on the resource is essential to manage risks and realise opportunities. In this sense, governments too have a role to play in providing leadership to encourage businesses to consider water-related risks in decision-making, realising benefits beyond the individual business.

Will the perceptions and actions of business leaders shift over the coming decade? Will genuine ‘first-mover champions’ reap benefit from their leadership? And can the collective efforts of all actors, including those in government, academia and civil society, contribute to a reversal or levelling out in the upward climb of environmental risks through the ranks of global risks by the time WEF reports in 2030?

Aither looks forward to working with corporate partners to identify and manage water-related risks, and grasp opportunities, over coming years and to reporting on our findings here.