Four out of the top five risks for doing business in Asia Pacific (APAC) are economic risks, according to the APAC results of the World Economic Forum (WEF) Global Risks Report 2017, produced in partnership with Zurich Insurance.
Environmental risks fell in the rankings, while cyber and terrorism threats emerged as risks of increasing concern for companies doing business in APAC.
Economic risks are top of mind
The results of this year’s Global Risks Report again highlight how economic risks continue to dominate APAC respondents’ concerns, with four of the top five risks being economic risks (unemployment or underemployment; energy price shock; fiscal crises; and asset bubbles) and 18 out of 20 APAC countries ranking economic risks within the top three biggest threats to doing business.
Commenting on the APAC results, Cecilia Reyes, Chief Risk Officer, Zurich Insurance Group, said, “The emphasis on economic risks is clear: the world is facing the challenge of reviving economic growth during a time of multiple complex transitions towards new global economic and geopolitical balances.
“Asia Pacific continues to experience high growth rates relative to the US and Europe, but faces its own challenge in shifting towards more sustainable growth models, particularly in China. Many Asia Pacific countries are increasingly reliant on their trading relationships with China and therefore particularly exposed to economic downturns in the Chinese economy, in addition to the risk of a slowing global economy.”
Environmental risks can be devastating to businesses
Economic risks do not place in the top five global rankings in terms of both their likelihood and their impact. In contrast, three of the top five risks in terms of their impact are environmental risks: extreme weather events; major natural disasters; and failure of climate-change mitigation and adaption). The risk of extreme weather events ranks as the most likely global risk.
Last year saw the highest costs from natural disasters, which totaled US$175 billion worldwide, with two earthquakes in Japan in April 2016, accounting for the greatest financial impact.
Despite this stark reminder of their catastrophic and far-reaching impact, environmental risks have become less of a concern in APAC, with natural catastrophes (ranked 7th) being the only environmental risk among the top ten risks for doing business in APAC – down from last year.
“Social and economic development in the region has resulted in a rapid transition to more urban living, meaning cities are more densely populated and the impact of natural catastrophes is amplified,” comments Geoffrey Au, APAC Chief Risk Officer, Zurich Insurance Group.
Au further said that 2016 did see some progress towards addressing climate and other environmental risks, but the pace of change is not fast enough in APAC or anywhere else.
“Environmental risks need to be a priority for the region as the consequences can be severe and far reaching.
“The potential impact of environmental risks on supply chains is a very real example of how companies that fail to plan for and mitigate these risks can suffer from their crippling logistical and financial impact.”
Increasing concern of cyberattacks and terrorism
Cyberattacks moved up in the ranks to become the sixth biggest risk to doing business in APAC. In a complex environment – which cost the global economy an estimated US$315 billion through cybercrime in 2015, $81bn of which was lost in APAC – executives in Australia, Japan, Malaysia, New Zealand and Singapore single out cyberattacks as a top three risk of highest concern.
“Embracing new IT-driven technologies opens up wide-ranging opportunities for organizations of all sizes – but our increasing reliance on the internet introduces significant new risks too,” says Reyes.
“In light of the increasing volume and sophistication of security breaches, it is no longer sufficient to consider cyber risk a concern for the IT department. Today, cyber risks require board-level attention and organizations must plan for a co-ordinated recovery in the event of an attack, so that when breaches happen, they can get the business back to full strength, at full speed, with their reputation intact.”
With the region presenting a volatile geopolitical landscape, the risk of terrorism, which has never previously featured in the top ten risks for doing business in APAC, also emerged as the ninth risk of greatest concern.
Pakistan, Singapore, Indonesia, The Philippines and Thailand, among others, all highlighted the risk of terrorism.
The UN recently warned of the threat of terrorism in Southeast Asia, which last year saw an increase in the number of cases of terrorist violence, and called for effective collaboration among ASEAN partners.