0© MMC

GLOBAL RISKS REPORT 2019Alex Wittenberg| Montreal

1© MMC

RISK LANDSCAPE

Out of control…

A DEEPER LOOK

Multiconceptual world, human side of global risks, preparing for sea-level rise, biological risks

EVOLUTIONS AND EXTRAPOLATIONS

From infrastructure investing to AI capabilities; civil society erosion to food security challenges

RISK MANAGEMENT

offs, managing risks

2© MMC

FRACTURES, DISCONNECTS AND FAILINGS

3© MMC

ECO

NO

MIC

TEC

HN

OLO

GIC

AL

GEO

PO

LITI

CA

LSO

CIE

TAL

THE TIGHTENING QUEST FOR CONTROL

Major-power economic tensions

Major-power political tensions

Populist and nativist agendas

Cyber-attacks(operations/infra)

Erosion oftrade relations

Loss of confidence in security alliances

Cyber-attacks(theft of data/money)

Media echo chambers/ ‘fake news’

4© MMC

RISE OF ‘HYBRID THREATS’GEO-ECONOMIC

Regulation

Competition

Supply chain

Operations

Workforce

Investment

Geoeconomic factors

Uncertain, nationalistic

Tariffs, local champions

Friction, reorientation

Asset security

Local promotion, unrest

Foreign ROI concerns, FX

Unknown, early-stage

FANGs, BATs and others

Transformation

Cyber, technology integration

Automation management

Technology ROI concerns

Geotechnological factors

5© MMC

RISE OF ‘HYBRID RISKS’GEO-TECHNOLOGICAL

Regulation

Competition

Supply chain

Operations

Workforce

Investment

Geoeconomic factors

Uncertain, nationalistic

Tariffs, local champions

Friction, reorientation

Asset security

Local promotion, unrest

Foreign ROI concerns, FX

Unknown, early-stage

FANGs, BATs and others

Sanitization, transformation

Cyber, technology integration

Automation management

Technology ROI concerns

Geotechnological factors

6© MMC

2019 GLOBAL GROWTH FORECAST

A POTENTIAL ECONOMIC DOWNTURN ON THE HORIZON

1

-5

-4

-3

-2

0

-1

2

Germany

Japan

Canada

France

Italy

UK

US

2016 20202017 2018 2019

G7 GOVERNMENT BUDGET DEFICIT

Limited fiscal firepower to combat potential an economic downturn

Source: IMF, WEO database April 2019, OECD

3.0%

3.5%

4.0%

4.5%

Q1/18 Q2/18 Q4/18Q3/18 Q1/19 Q3/19Q2/19

IMF

OECD

Global growth forecasts downgraded

7© MMC

CYBER ATTACKS AND DATA FRAUD / THEFT DOMINATE BUSINESS LEADER IN NORTH AMERICA

Note: WEF Executive Opinion Survey (12,548 responses worldwide).

Economic Environmental Geopolitical Societal Technological

Top risks concerns in Canada

Large cyber attacks

Asset bubble

Energy price shock

Critical infrastructure failure

Top risks concerns in the US

Large cyber attacks

Data fraud or theft

Fiscal crisis

Weapons of mass destruction

Terrorist attack

Extreme weather events

8© MMC

FORESTALLING INFRASTRUCTURE CRISES

9© MMC

SIGNIFICANT GLOBAL INVESTMENT GAP

Investment Needby 2040

Current InvestmentTrend

$79 TN

$94 TN

By sector

RoadEnergyRailWaterTelecomAirportPort

By region

Americas

Asia

Europe

Africas

Oceania

Investment gap

Source: Global Infrastructure Hub estimation across 50 countries, which together constitute more than 85% of global GDP

10© MMC

INFRASTRUCTURE GAP IN NORTH AMERICA AND CANADA

By sector

Road Energy

Rail Water

Telecom Airport

Port

Investment gap

Source: Global Infrastructure Hub for the Americas; The Canadian Chamber of Commerce

$50 – $570 BN

For Canada:

Of infrastructure deficit in 2013, depending on methodology used

2.9% of GDPOf annual investment just to maintain 2011 level infrastructure stock

Investment need by 2040

US

Canada

Current Investment

12.3 TN

8.5 TN

1.2 TN1.22 TN

11© MMC

GROWING INFRASTRUCTURE CHALLENGES

Unsustainable pressure of use

Vulnerability to disasters

Rapid economic and population growth

New forms of infrastructure

12© MMC

SOME DATA POINTS FOR CANADA…

Property & casualty insurance catastrophic loss From 1983-2018 in $ million(2017 dollar)$7.5 – $11 BN

Estimated annual total economic, social and health costs of congestion in Toronto alone

$15 BNEstimated direct annual costs of congestion for the Greater Toronto and Hamilton areas by 2031

Source: Infrastructure Canada; Insurance Bureau of Canada

0

1000

2000

3000

4000

5000

19

83

19

85

19

87

19

89

19

91

19

93

19

95

19

97

19

99

20

01

20

03

20

05

20

07

20

09

20

11

20

13

20

15

20

17

P&C Insurance loss

5 per. Mov. Avg. (P&C Insurance loss)

13© MMC

THREE IMPERATIVES

Strengthen system resilience

Improve project bankability

Negotiate geopolitical realities

14© MMC

CLIMATE CHANGE

15© MMC

3.0

4.0

3.2

3.52.5 3.0

3.4

3.6

4.5

3.8

4.0

2.8

Terrorist attack

Failure of regional governance

Failure of major financial institution or mechanism

Failure of urban planning

Failure of national governance

Imp

act

Extreme weather

Asset bubble

Biodiversity lossCritical information systems failure

Infrastructure failure

Climate change adaption failure

Cyberattacks

Deflation

Interstate conflict

Energy price shock

Fiscal crises

Natural catastrophe

Food crises

Illicit trade

Infectious disease spread

Inflation

Man-made catastrophe

Social instability

Water crises

Consequences of technological advancement

Likelihood

Involuntary migration

Unemployment

WMD

Data fraud

State collapse

ENVIRONMENTAL RISKS DOMINANT ON A 10-YEAR OUTLOOK

16© MMC

3.4 3.6 4.0 4.43.8 4.23.4

3.6

3.8

4.0

Water crises

Involuntary migration

Cyberattacks

Likelihood

Biodiversity loss

Imp

act

Climate change adaption failure

Man-made catastrophe

Natural catastrophe

Extreme weather

ENVIRONMENTAL RISKS DOMINANT ON A 10-YEAR OUTLOOK

17© MMC

PROJECTED CHANGES IN CANADA’S CLIMATE

TEMPERATURE

Increase in overall as well as extreme

temperature, with warm spells and heatwaves

lasting longer

HYDROLOGICAL EVENTS

Increase in precipitation, more frequent heavy and

extreme events

SNOW AND FROST

Decrease in snow-covered and

ice-covered duration

RISING SEA LEVELS

Global sea level to rise from a few tens of

centimetres to more than a meter

Source: Council of Canadian Academies; ; The Expert Panel on Climate Change Risks and Adaptation Potential

18© MMC

MORE FREQUENT EXTREME WEATHER EVENTS INFLICTING SIGNIFICANT LOSS TO INSURERS

0

1000

2000

3000

4000

5000

19

83

19

85

19

87

19

89

19

91

19

93

19

95

19

97

19

99

20

01

20

03

20

05

20

07

20

09

20

11

20

13

20

15

20

17

P&C Insurance loss

5 per. Mov. Avg. (P&C Insurance loss) Early-May windstorm affecting Ontario and Quebec

$410 million

Summer storms across the Prairies

$240 million

$295 millionOttawa-Gatineau tornadoes and windstorms in September

In 2018 alone:

Source: Insurance Bureau of Canada

Property & casualty insurance catastrophic loss From 1983-2018 in $ million(2017 dollar)

19© MMC

AREAS OF PARTICULAR VULNERABILITY TO CLIMATE CHANGE IN CANADA

At the national level, climate change risks in the next 20 years are highest in the areas of physical infrastructure, coastal communities, northern communities, human health and wellness, ecosystems, and fisheries.

The Canada Expert Panel on Climate Change Risks and Adaptation Potential

“

”

Assessment of major areas of climate risks facing Canada

Source: Council of Canadian Academies; The Expert Panel on Climate Change Risks and Adaptation Potential

Panel assessment of consequences and likelihood for major areas of climate change riskThis figure represents the Panel's assessment of consequences (disruptions, damages, or loss in the next 20 years) and likelihood for major climate risk areas facing Canada. The smaller graph shows the ascribed results using the entire 0—100 scale for each axis, and the main graph provides a detailed view showing the relative positioning of these risks. The Panel was less confident in its relative rating of the Indigenous ways of life risk area, as there were no Indigenous members on the Panel and only limited inclusion of Indigenous knowledge in the assessment.

20© MMC

STRATEGIES FOR RISK REDUCTION

Managed retreat

Relocation of populations and critical assets

Hard infrastructure

To keep water out, e.g.

• Sea walls

• Storm surge barriers

Soft infrastructure

For coastal resilience, e.g.

• Wetland conservation

• Beach nourishment

21© MMC

HEADS AND HEARTS

22© MMC

RISING ANXIETIES AND CONCERNS

Societal stressors

• Political uncertainty/ divisiveness

• Financial challenges

• Conflict and violence

• Isolation and loneliness

Workplace stressors

• Blurred line between work and life

• Automation concerns

• Increased monitoring

• Job insecurity

Technological stressors

• Digital addiction

• Replacement of relationships

• Fake news and echo chambers

23© MMC

RISING ANXIETIES AND CONCERNS IN CANADA

1 in 5Canadians experienced a mental illness or addiction problem

$51 BNThe estimated annual economic burden of mental illness in Canada

Healthcare costs

Productivity loss

Reduction in quality of life

• Young people aged 15 to 24 more likely to experience mental illness

• Workers reported increased stress and isolation from lack of quality permanent, full-time jobs

Shaky employmentStudent debt

Housing price

Stress and isolation

Source: The Centre for Addiction and Mental Health

24© MMC

IMPLICATIONS AND IMPERATIVES FOR FIRMS

“Human capital” risk

Workforce demographics

Workforce psychographics

Reskill or replace Enabling environment

25© MMC

CONCLUDING REMARKS

26© MMC

THE GLOBAL RISK LANDSCAPE IS DEFINED BY EMERGING RISKS

More consequential

Emerging

Reawakened

Evolving

Novel

Aggravated

Types

Spill-over consequences

Non-linear development

Near- or long-term impacts

Invisible, distinct tipping points

No certainty of crystallization

Combinatory force

Features

“Complex threats and uncertainties that may have significant, unexpected impacts on company earnings and market positioning”

27© MMC

NURTURING CORPORATE VERSATILITY

Crisis preparedness playbook1

Broad-based resilience2

Strategic adaptation3

!

28© MMC

IMPLICATIONS FOR THE BOARD – “ADAPTIVE GOVERNANCE”

Agenda space for discussing future risks

Active guidance on resiliency improvements

Board diversity and fit-for-purpose skills

Open, challenging and self-reflective culture

New thinking on corporate risk and resilience in the global economy

GO TO: www.brinknews.com

FOR MORE INFORMATION…

Unique perspectives and solutions for society’s most complex challenges

GO TO: www.mmc.com/insights.html