In the Anthropocene era we are living in, man-made and natural risks are intersecting and clashing like never before, with impacts never previously seen in human history. This has prompted a variety of organisations to study its impacts, with some surprising and frightening results. For example, in 2015, Lloyd’s and the Cambridge Centre for Risk Studies published a fascinating study on cities at risk around the globe from both types of risks. It was the first of its kind that mapped out how $4.6 trillion of approximately 300 cities’ Gross Domestic Product was at risk from man-made and/or naturally occurring risks. Among its conclusions was that man-made risks are becoming increasingly significant, new and emerging threats are having a rising impact on the overall risk landscape, and the bulk of the cost of these risks will ultimately be borne by the developing world, which is in the least favourable position to do something about it.
Excluding the risk of a market crash, human pandemics, wind storms, earthquakes, floods and cyberattacks were identified as four of the top five risks in the Lloyd’s study, accounting for approximately half of the assets at risk. Cities with high asset values were judged to be the most financially exposed in absolute terms, with Hong Kong, New York, Seoul, Shanghai, Tokyo all having significant levels of economic exposure to the impacts of catastrophic events. Istanbul, Taipei, Tokyo, and Osaka exemplify cities that have a combination of high economic value and high exposure to both natural catastrophes and man-made risks, such as financial market crash or oil price shock. The same is true of cities such as Los Angeles and New York, where cyberattacks were judged to be significant emerging risks. And in cities like Hong Kong and Shanghai, human pandemic was identified as an additional risk.
A 2018 study published by the Virtual Capitalist mapped the world’s wealthiest cities, with the top 15 cities accounting for approximately $24 trillion in wealth. The top six cities—with estimated wealth ranging from $3 trillion to $2 trillion each—were New York, London, Tokyo, San Francisco, Beijing and Shanghai. Of the top 15, 10 were coastal cities and all were centres of financial activity. As was the case with the Lloyd’s study, the majority of the cities with the most at risk were coastal cities, which were also financial centres.
Consider, then, the potential impact that climate change could have on the global economy by virtue of the fact that most of the world’s financial centres and wealthiest cities are adjacent to oceans that would be negatively impacted by rising sea levels. The Organization of Economic Cooperation and Development produced a study outlining the top 10 cities at risk of from rising sea levels (based on current projections) into the year 2070. In terms of population size, those cities were (in descending order) Kolkata, Mumbai, Dhaka, Guangzhou, Ho Chi Minh City, Shanghai, Bangkok, Yangon, Miami and Hai Phong. In other words, nine of the 10 were in Asia. Based on asset size, the top 10 cities at risk from rising sea levels into the year 2070 (again based on descending order) were Miami, Guangdong, New York, Kolkata, Shanghai, Mumbai, Tianjin, Tokyo, Hong Kong, and Bangkok. Once again, eight of the 10 were Asian cities, with only two located in North America.
Most of us are unaccustomed to thinking about the Anthropocene era in terms of how the clash between man-made and natural risks is impacting, and will impact in the future, people, assets, cities, and countries on a grand scale. Fortunately, some of the world’s best respected organisations are doing just that, and the results are sobering. It is clear, based on the information presented here, and on many other studies and ongoing research, that the collective impact on humanity from this clash is already profound and threatens to get much worse within many of our lifetimes. Too few city, state, and federal governments are thinking serious about future impacts or devoting the resources and funding needed to combat the looming threat.
At the pace that the clash between man-made and natural risks is occurring, there can be little doubt that rising sea levels will have profound impacts on the world’s coastal cities. What would happen if, as predicted, in just 50 years, many of the world’s financial centres were under water?
An inability to predict where the next weather event will occur has placed a premium on understanding the nature of risk, establishing a program to protect assets and respond, and having the organisational resilience to be able to withstand whatever comes our way. Resilience is no longer simply a matter of having the right insurance in place (while this remains an important piece of the puzzle), it is a function of having the right frame of mind, a plugged-in view of the world, and a defensive posture that will allow for a swift, nimble and coordinated response.
Those firms and governments that are successfully managing risk today are not caught off guard when a risk is barrelling toward them. Instead, they are anticipating those risks and devoting the resources necessary to tackle them, head on. Surely, the world’s cities and nations need to do a better job of getting out in front of the clash between man-made and natural risks. The stakes are simply too high to do otherwise.
Daniel Wagner is CEO of Country Risk Solutions and co-author of Global Risk Agility and Decision Making.