Risk Perceptions Do Not, and Cannot, Stand Still

Risk Specialist
 on 
October 7, 2021

As children, we were told not to talk to strangers. We were told to carry a coin for making a telephone call in case of emergency. These were solid risk management practices instilled into us from an early age, but as with all risk management techniques, these fundamentals have also had to evolve and adapt over time.

Generations later, the perils associated with strangers are now more prevalent online than in the playground, and our children will likely never use a coin operated telephone nor carry a coin in their pocket.

The point is that risk management in any context does not and cannot stand still. Whether it’s assessing and managing the risk exposure to our children, the risk in our own personal investment portfolios or risks to our businesses, the ways and means we do this has to evolve to keep pace with technological change and emerging threats. It must also respond to unforeseen “black swan” events such as a global pandemic.

The key risk categories that currently drive and shape our personal and professional risk responses are underlined by the World Economic Forum’s Global Risks Report. This report tracks changes in risk perceptions through the Global Risks Perception Survey.

In 2020, for the first time since the report was launched in 2006, one category occupied the top 5 slots and continues to be prevalent in 2021: Environment. This includes issues relating to global warming – such as extreme weather and biodiversity loss. Climate change is hitting harder and accelerating faster than many people predicted and now shapes our lifestyles, investment choices and business strategies as never before.

Also prominent since 2012 have been risks associated with our digital world. Particularly the risk of data fraud, data theft, cyber-attacks and more recently digital inequality and power concentration. Our risk responses, whether in our personal or professional capacities, must now withstand all of the threats borne out of remote collaboration, automation, artificial intelligence and 24/7 accessibility.

Source: WEF Global Risks Report 2021: http://www3.weforum.org/docs/WEF_The_Global_Risks_Report_2021.pdf
Source: WEF Global Risks Report 2021: http://www3.weforum.org/docs/WEF_The_Global_Risks_Report_2021.pdf

The evolution of known risks and the emergence of new risks is not uniquely perceived among those engaging in the risk management community. Whether we are necessarily aware of it under the banner of “Risk Management”, changing and emerging risk trends drive and shape our day-to-day risk appetites and responses, not only professionally but also privately.

Here at the Capital International Group, we constantly monitor, assess, and manage risk across our structures, products and people. We too adapt and evolve, revising our attitudes towards risk and our appetite for risk. From our digital banking proposition to our ESG manifesto, the Capital International Group is committed to keeping pace with change through a responsible and sustainable approach, which seeks to deliver for generations to come.

While this article has served as a high-level introduction to risk, in the coming months, and as future Quarterly Investment Reviews are published, we will be explaining and demystifying some of the theory surrounding the topic. This will include:

- Risk based decision making

- Machine learning in risk management

- Supply chains, outsourcing and third party risk

- People related risks