- Risk and resilience must be embedded into our psyche and the DNA of companies, say experts.
- Mitigating risk is easier than dealing with the damage after the event.
- Overcoming short-termism is essential to risk management.
Understanding and mitigating risks before they happen is key to building resilience and therefore sustainability. But persuading people to take risks seriously is extremely difficult. This was the conclusion of panellists at the Risk Reset session during the Sustainable Development Impact Summit 2020.
"Risk is core to the question of sustainability. Sustainability to me is that you are able to cope with the changing environment," said Peter Giger, Group Chief Risk Officer at Zurich Insurance Group.
"Risk is no longer a department within a corporate or a government, it has be within our psyche," added Rania Al-Mashat, Egypt's minister of International Cooperation.
"The word resilience is one which must always be within the DNA of a corporate. Asset managers need to make sure there is enough investment in what creates resilience for a corporate. This shouldn't be belittled or overshadowed in any way."
The human conundrum
However, human nature preconditions us not to tackle risks, according to Peter Giger. The risk of a pandemic, for example, was highlighted by many insurers and health experts. And yet the world was hugely unprepared for what happened when COVID-19 hit.
"Humans have a very short-term memory. We're very good at forgetting the threats of the past because it is not good for our well-being," he explained.
"When it comes to risk management, we have to get over the human condition. We have to learn to deal with rare events."
By acknowledging the risk, we can also mitigate it. Building a dam, for example, is so much better than dealing with the damage afterwards.
"The cost is not bearable to society if we let the risks run and materialize. We have to invest in mitigation. How do we convince society to make these investments when the house is not burning? Because once it's on fire, it's too late," he said.
Policy-makers have a key role to play in making sure that they look at the long-term rather than always focusing on immediate problems.
"From a government perspective, it's about whether you govern for the next election or the next generation."
The next crisis
As detailed in the World Economic Forum's COVID-19 Risks Outlook, the impact of the pandemic has created new risks in many different areas, including the economy, society and the environment.
But we also need to be thinking about other major risks that may emerge.
"We are all prone to another crisis, it may be a cyberattack, it may be environmental. This puts the onus on more than one player in any society," said Rania Al-Mashat, adding that governments have previously borne the brunt of the protection gap for vulnerable groups.
Insurers are investing heavily in artificial intelligence and financial models to better predict the future. But the real problem that needs addressing, according to Peter Giger, is how to persuade people to take the possibility of risks more seriously.
"I don't think it's a modelling problem, it's a perception issue. There is much more philosophy than algorithm in the problem," he said.