Cost-of-living Crisis Overshadows Climate Change: Davos Report

Climate change is the world's biggest long-term challenge, but it is one that the world is least prepared to address due to short-term issues caused by a cost-of-living crisis.

Source: AP | Published on January 12, 2023

WEF climate change

Climate change is the world’s biggest long-term challenge, but it is one that the world is least prepared to address due to short-term issues caused by a cost-of-living crisis, according to a World Economic Forum report released Wednesday.

The Global Risks Report, released ahead of the group’s annual gathering of government leaders and business elites in the Swiss Alpine resort of Davos next week, paints a bleak picture.

The report, based on a survey of 1,200 risk experts, industry executives, and policymakers, claims that the environment will be the biggest challenge over the next decade, but more immediate challenges are distracting world leaders, some of whom will be in Davos for panel discussions and schmoozing at an event that has been chastised for failing to produce concrete action.

“The coming years will present difficult trade-offs for governments confronted with competing concerns for society, the environment, and security,” according to the report, which was co-authored with global insurance broker Marsh McLennan and Zurich Insurance Group.

“A failure to mitigate climate change is ranked as one of the most severe threats in the short term, but it is the global risk for which we are seen to be the least prepared,” according to the report.

Respondents said the top four long-term challenges are climate-related: failure to limit or adapt to climate change; natural disasters and extreme weather; biodiversity loss; and ecosystem collapse.

Short-term risks include putting pledges to achieve net zero emissions of heat-trapping carbon dioxide to the test, which “has exposed a gap between what is scientifically necessary and politically palatable,” according to the report.

“We need to be better at balancing the short-term risk outlook with the long-term risk outlook,” said Carolina Klint, Marsh’s risk management leader, “and we need to make decisions now that may feel counterintuitive because they may be a little bit costly upfront, but it’s just unavoidable.”

Klint cited the large investment required to accelerate the transition from fossil fuels to sustainable energy as one example.

A cost-of-living crisis triggered by the COVID-19 pandemic and Russia’s war in Ukraine has sent food and energy prices soaring, squeezing household finances worldwide over the next two years.

Other aftershocks caused by the pandemic and war have heralded a new and bleak era for the global economy.

Governments and central banks are faced with the choice of reining in inflation by raising interest rates, which risks triggering a recession, or spending money to protect people from its worst effects, which could add to already-high levels of public debt.

According to the report, deglobalization is becoming more popular. The Ukraine conflict highlighted Europe’s reliance on Russian oil and natural gas, while microchip shortages caused by pandemic restrictions highlighted Asia’s dominance in semiconductor manufacturing.

“Economic warfare is becoming the norm,” according to the report. Tensions will rise as global powers employ defensive economic policies to reduce reliance on rivals and offensive policies to limit the rise of competing nations.

Furthermore, society is becoming increasingly polarized. Economic and social divisions are morphing into political ones, with people divided on immigration, gender, reproductive rights, religion, climate, and other issues, contributing to democracies’ decline.

Misinformation and disinformation from political influencers spreading extreme beliefs and swaying elections through social media “echo chambers” are major factors, according to the report.

Another growing threat is cybercrime and cyber insecurity, which are caused by increasingly interconnected public services such as transportation, financial, and water systems, making them vulnerable to online disruptions and attacks.

According to the report, the race to develop new technologies in areas such as artificial intelligence, quantum computing, and biotechnology will provide partial solutions to some crises, but it may also widen inequality because poorer countries cannot afford them.

“The resulting new economic era may be one of growing divergence between rich and poor countries, as well as the first rollback in human development in decades,” the report said.