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World Economic Forum's Global Risks Report 2016 - How open are you to cyber attacks? - Focus

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For just-drinks' full coverage of the World Economic Forum's Global Risks Report 2016, click here

The World Economic Forum Global Risks Report 2016 underlines the threat of cyberattack as a growing menace facing major companies. Ben Cooper examines the report's findings on the dangers of cyberattacks and other principal risks facing companies over the next ten years identified in the report.
 
The benefits of the digital revolution for consumer goods companies are undeniable, both in relation to business efficiency or in the fundamental way it has transformed the relationship consumers have with brands, through websites, online shopping and social media. However, the digital age has brought with it risks that did not exist in simpler times, the most tangible example of which is cyber attack. It is no surprise, therefore, to see the prominence the World Economic Forum Global Risks Report 2016 gives to what is an increasingly prevalent and costly issue.

The risk to companies from cyber attacks continues to grow

The risk to companies from cyber attacks continues to grow

In its eleventh edition, the report quantifies and compares business risks as identified by the Global Risks Perception Survey, a poll of 750 experts from business, government, academia, NGOs and international organisations. Conducted between mid-September and the end of October 2015, the survey examines the perceived impact and likelihood of 29 prevalent global risks, categorised as economic, environmental, geopolitical, societal or technological, over the coming ten years.

The top five "most impactful" risks were the failure of climate change mitigation and adaptation, followed by weapons of mass destruction, water crises, large-scale involuntary migration and severe energy price shock. The survey also examines risk in terms of likelihood where the top five risks were large-scale involuntary migration, extreme weather events, failure of climate change mitigation and adaptation, interstate conflict and major natural catastrophes.

Coming soon after the COP 21 talks in Paris late last year, the fact climate change is now seen as the biggest risk in terms of impact has attracted much attention but, as crucial and pervasive as the issue is, it should not eclipse other risks beyond the environmental sphere. Of these, cyber-attack is perhaps one the most notable.

As highly-automated and -computerised businesses, as well as enthusiastic adopters of social media as a marketing tool, major drinks companies are undoubtedly heavily exposed. Coca-Cola has already fallen victim to cyberattack, while companies such as PepsiCo, Heineken and Anheuser-Busch InBev use social media extensively (not least to underpin responsible consumption messages).

Fraud, theft, vandalism, industrial espionage and sabotage are risks that businesses have always carried, but the digital revolution has greatly increased the power of a small number of individuals - or even one person - to cause companies great harm. Moreover, data theft of consumers' personal information threatens to undermine the greater rapport and trust brands are seeking to establish with their consumers through social media.

Even though it ranked just outside the top ten overall in terms of both impact and likelihood, its relatively high rating on both puts cyber attack in the top right-hand quadrant of the report's Global Risk Landscape, a matrix plotting likelihood against impact.

Moreover, analysis of the Executive Opinion Survey (EOS), a separate survey of what business executives view as major risks to doing business, shows a greater emphasis on the risks of cyber attack while also revealing some sharp regional divergence.

Speaking at the press conference to launch the report, John Drzik, president of global risk and specialties at insurance and risk management firm, and report contributor, Marsh & McLennan, suggested that cyber attack was probably underestimated in the overall risk rankings. Drzik pointed to the "significant disparity" in how cyber attack risk was rated, both in the Global Risk Perception Survey, where it was number one in the US but not even in the top ten in many other regions, and in the EOS. The EOS shows cyber attack is perceived as the risk of highest concern in eight economies, Estonia, Germany, Japan, Malaysia, the Netherlands, Singapore, Switzerland, and the US, but in many others it does not feature at all.

"With respect to this striking difference," Drzik said, "I think the risk has been underestimated where it is low on the list." He even went so far as characterise the battle between the hackers and internet security efforts as an arms race. "This is a boundary-less risk; it's not going away. Today 90% of the cyber insurance is bought in the US, but 90% of the risk is clearly not in the US. It's clearly a much broader issue than that. So, I think this risk needs more attention in many markets and I think this is going to be with us for many years."

Drzik said addressing cybercrime was a good example of where the public and private sector could collaborate in tackling risk. "Security against the hacker community is a common interest for business and government," he said. He noted that some collaboration was already happening and this could be expanded.

Cyber attack and data theft are both classified as technological risks, as distinct from environmental, societal, economic or geopolitical, in the WEF methodology. Some classification of different types of risk is helpful, but an overarching theme emerging from the report is global risks are becoming increasingly interconnected.

"Risks are increasingly interconnected and they're increasingly imminent," Espen Barth Eide, head of geopolitical affairs at WEF, told the press conference. "The risk perspective is ten years, but risks that we've been seeing emerge are now perceived to be more here, more imminent, more real time, more tangible in this moment."

That could be said of the top-rated risk in terms of likelihood, that of large-scale involuntary migration. Margareta Drzeniek, head of global competitiveness and risks at WEF, said this year had seen involuntary migration "shoot up" to become the most likely risk, reflecting the huge concern over Europe's refugee crisis. It had also shown the largest change in risk rating of any factor examined by the report, Drzeniek added.

Respondents to the survey were additionally asked which risks were inter-related and could give rise to "cascading risks". Three emerged strongly: the potential for climate change to exacerbate water crises; the global refugee crisis; and the risks of failing to fully understand the risks around the Fourth Industrial Revolution, a collective term defining a combination of trends in automation, data exchange and manufacturing technology, and how the transition will have an impact on countries, economies and people at a time of persistently sluggish growth.

The potential for climate change to trigger political instability and conflict in the future is clear and, by the same token, political instability threatens to undermine global responses to climate change. Cecilia Reyes, chief risk officer at Zurich Insurance Group, which also contributed to the report, defined this as a "negative feedback loop".

According to Reyes, while geopolitical instability carries its own inherent risks - exposing businesses to cancelled projects, revoked licences, interrupted production, damaged assets and restricted movement of funds across borders - it also makes the challenge of climate change "all the more insurmountable, reducing the potential for political co-operation, as well as diverting resource, innovation and time away from climate change resilience and prevention".

At the same time, climate change itself "is exacerbating more risks than ever before in terms of water crises, food shortages, constrained economic growth, weaker societal cohesion and increased security risks". 
It is perhaps no surprise that, in the increasingly interconnected world which the Fourth Industrial Revolution is creating, it will be the capability of risks to cause or exacerbate others that will be an abiding feature of the global risk landscape.

For just-drinks' full coverage of the World Economic Forum's Global Risks Report 2016, click here


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