As we batten down the hatches for the tail end of yet another cyclone, it seems like a good time to think about risk.
Particularly the risks posed by extreme weather events – now ranked the most serious threat to the global economy in the World Economic Forum’s 2018 Global Risks Report.
In town last week to present the report – and its local findings – Wolfram Hedrich, executive director at the MMC Asia Pacific Risk Center had a pretty clear message for business: the impact of climate change is real whether you believe the science or not.
Most people – including those at senior levels of business and government do believe the science. That means the world is going to be shifting to a lower carbon economy.
Regardless of how much sea levels rise, investors and consumers are worried.
Their behaviour is shifting and businesses will need to adapt to that.
The Global Risks Report surveyed 1000 “senior thought leaders” from the World Economic Forum’s network of professional contacts.
I don’t want to stereotype, but I have a hunch these people aren’t hippies.
Most of them weren’t previously so worried about environmental issues.
Between 2009 and 2014 they ranked economic risk – such as asset price failure and financial system failure top of the pile for biggest potential impact.
Now only nuclear war tops environmental worries and then only for its potentially devastating impact.
Extreme weather events rate as the most serious risk by likelihood.
The Report divides perceived risk into two categories – likelihood and impact.
On a matrix that considers the likelihood and impact of potential risks – extreme weather events are way out in front.
The next three categories of risk, by rank, are: natural disasters, failure to adapt to climate change and water crises.
Then you get to cyber attack – which has risen sharply in the past year to third by likelihood and sixth by impact.
In New Zealand the pool of survey respondents is presumably small but the local list varied from the global rankings in understandable ways.
Natural disaster was top of the list, followed by extreme weather events, large cyber attack, asset bubbles and urban planning.
Both the asset bubble and urban planning categories capture local concerns about housing prices and housing shortages.
It is true this kind of survey tends to reflect the fears getting most attention in the media at the time it is taken.
For example, in the UK where Brexit worries dominate, economic risks remained at the top of the list.
This is perception survey, after all.
But, given the overwhelming improbability of accurately predicting real odds on the various risks, a perception survey is more useful.
It only attempts to measure attitudes to risk and as such is far less likely to be wrong.
On that basis the upshot of the latest risk report is climate change sceptics are becoming increasingly irrelevant.
You can choose not to believe the science. But you can’t choose how your customers and investors perceive the world.
We are moving to a lower-carbon economy.
The world still runs on oil, so it is a slow process. But the trend is clear.
We see Government superannuation funds cleaning up their act and shifting towards more carbon friendly investment.
We see a rise in exchange traded funds that track ethical stocks and renewable energy.
The smart money in places like California is betting on electric cars – even as the White House attempts to revive dying industries like coal.
The long-term future focus of the Chinese economy is driving heavy investment clean technology.
That’s lowering costs for solar power generation at rates that mirror Moore’s Law for computer processing advances.
The report highlights the interconnected nature of risk.
Extreme environmental change has consequences well beyond the direct impact on those in the path of the bad weather.
It heightens geopolitical and economic instability. It drives immigration patterns.
Even the positive stuff – the shift to a greener economy – is likely to trigger large-scale labour market and financial market disruptions in the coming years, the report says.
The economies and businesses that will cope best are the ones that remain agile, adaptable and embrace change.
It’s a well-worn line that the Chinese word for crisis is the same as the word for opportunity.
It’s not actually true (the Chinese character for crisis appears as an amalgam of danger and opportunity – but it doesn’t carry that meaning).
Nevertheless, the point Homer Simpson was making when he coined the term “crisitunity” is a good one.
In many cases a crisis represents some form of dramatic change and with that comes opportunity to reposition yourself.
To put it bluntly, change brings opportunity to gain competitively against peers less able to deal with situation.
That’s a pretty mercenary “upside” to climate change but that’s the nature of the competitive global market.
Capitalism got us into this mess and – with no sign of Utopian revolution on the horizon – it looks like capitalism is going to have to get us out.
Business recognising that there is money to be made in shift to a cleaner world is part of that process.