How many risk managers have extreme weather events at the top of their worry list? Not too many, one would expect – unless they are in the insurance or building sectors, or are a local council, or something similar.
But in its annual review of the global risk landscape, the World Economic Forum puts extreme weather top in terms of likelihood for the first time in 11 years. It ranks second in the severity of impact should the risk crystallise. Only weapons of mass destruction score higher.
In fact, storms, floods, extreme heat, and tornados and the like don’t make it onto the top ten operational risks, according to Risk.net’s recent poll of risk managers. But when they do happen, the effects can be sudden and serious.
For example, in February, supermarkets rationed certain vegetables because of severe weather in their supply chains. A mixture of heavy rain in prime growing regions in Spain, and cold snaps in Italy, created a shortage of lettuces, according to the BBC.
While large companies may be more affected via their supply chains, smaller businesses are hit directly. The insurer Towergate reckons about 65% of small businesses lose revenue because of bad weather. Only about three in ten insure against it.
Weather is a real threat to businesses. And while scientists sometimes disagree, most conclude severe weather is either becoming more common, or increasing in intensity. In fact, the Australian financial regulator is preparing to stress test institutions on their resilience to climate change.
Risk managers understandably focus on those risks they perceive as most pressing. Risknet’s survey ranked cybercrime as the top operational risk. But perhaps this trend is peaking. Cyberattacks don’t make it onto this year’s WEF ranking of top five risks in terms of either likelihood or impact.
In fact, consultants are saying the number of cyberattacks is falling. The last quarter of 2016, saw a 35% drop in such attacks, according to the security specialist NTT. Cyber criminals have not gone away, but they are honing their techniques and picking their targets more carefully.
Perhaps it’s time for those with well-developed cyber defences to revisit their extreme weather risk assessments. That is especially important in terms of their potential impacts on supply chains and customers. WEF’s annual report is a timely reminder that the real world still exists and it can make its presence felt in unexpected ways.
Editor, Enterprise Risk magazine