Rikard Lundgren (Steendier): WEF Annual Risk Report, 2025
Barking up the wrong tree?
Throughout the years I have followed the annual WEF Risk Report, it has used different approaches to identify, analyze and probability-rate global risks. In some years, the report included outside-the-box risks constituting potential serious threats to the world. With that method, many quite diverse risks were identified, and special focus was put on those risks with the worst possible consequences, even if their probability was low. Risk professionals call such an approach a Reverse Risk Analysis. The WEF 2025 risk analysis does the opposite. It preselects some pretty well-known, and in some cases already partly mitigated risks, and then asks a number of risk professionals around the world to rank their probabilities. Such accounting-like methodology may look precise but tends to be useful only if applied to an environment that is stable. It gives a misleading sense of professionalism and precision with its many decimals and contributors. It doesn’t capture new or swiftly changing risks which may indeed be the most dangerous. When looking back just a few months, it is clear that we are facing several hitherto unknown risks with no quantifiable probability but huge potential consequences. The proverbial elephants in the room are unusually numerous.
Rikard Lundgren, CEO of advisory firm SteenDier, critiques the WEF 2025 Risk Report for its narrow methodology and lack of holistic risk assessment. He urges a broader, more imaginative approach to identifying emerging global threats.
Elephants
The report doesn’t see Mass Migration and its potential (often indirect) consequences as a risk: crime, ghettofication around large cities, drug epidemics, rise in populist politics, infiltration of public agencies through corruption and intimidation. Some threats blend into others, e.g. criminal gangs cooperating with religious fanatics and government-sponsored terrorism in certain regions of the world. Not on the WEF radar! There is no mentioning of the risk of deindustrialization as a (sometimes intentional) consequence of strict net zero policies implementation. This risk is especially relevant if such policies are applied by some countries but not by others, with whom the net-zero countries compete. The inevitable consequence is an increasing divergence in growth rates and thus economic, political and military power and room for expansive ambitions – and this is one of the biggest “risk elephants” I have come across in my professional life. But the WEF report doesn’t see this. There is no mentioning of the unsustainable levels of debt of many countries, ignoring that debt has toppled countries and governments many times in the past and is likely to do so again. According to the WEF? Not a problem! There is no mentioning of the risk of breaking established alliances – if for no other reason than that it has become financially impossible for the U.S. to support the "established global world order" and being its main financier. For 70 years (since Eisenhower), the USA have pushed Europe to take a fair share of NATO’s financing, and for 14 years (since Obama) the US has sent clear signals that they would be pivoting away from Europe towards Asia. Europe and especially the EU were so busy harvesting the “peace dividend” that they didn’t listen and now have to face the consequences for their extravagant lifestyle. To not include this risk in a global risk report is, as recent events illustrate, an unforgivable blind spot. There is no mentioning of the demographic tipping points that approach as a consequence of an aging population and low nativity rates in many countries while other nations have totally different population dynamics, in some cases combined with local conflicts or incompetent governments, leading to large migration flows. These risks are easily identifiable for any risk professional with an open holistic mindset. All these elephants have that in common that they can have very large negative consequences unless dealt with. But none of them are included in the 2025 WEF Risk report. Instead, the report includes nebulous, subjective items such as “risk of disinformation”. It is difficult to shake the suspicion that the the inclusion of some risks and the omission of others is not merely the result of incompetence and bureaucratic myopia but may be influenced by WEF decision makers pre-defining priorities. Said Disinformation Risk is picked straight from Ursula von der Leyen’s 2024 January 16 speech at WEF. A process based on free thinking and wider collective intelligence would most likely have led to a different risk selection. Whatever qualities the WEF report has, useful holistic risk analysis is not one of them. What the Report and I agree on is that we are in a world that is moving from convergence towards divergence. The Global Rules Based Order is being challenged by a number of fast growing and less democratic nations and now also by the world’s most powerful nation. This will potentially lead to a more transactional world, where fewer issues are governed by policies, procedures, value bases, international doctrines and supranational organizations. Some think of this as a step backwards and are of the opinion that it must be resisted by all means, including by denying its’ very existence. I believe such risk blindness is unforgivable. The professional risk manager doesn’t take sides. He/she observes, assesses cooly and tries to predict what different scenarios might bring, without letting sentiments and feeling get in the way. Politics, being the product of idealism and utopian thinking is the antithesis to understanding of risks.
“The choice of analytical tools impacts the quality of the result.
The method used for the 2025 WEF Risk Report is unusually ill suited to the changing environment it is trying to understand.”
A better way
How would a neutral, cool-headed risk analyst, without the shackles of the WEF, have identify the most relevant (i.e. highest impact) risks the world is facing? Simply by using all available risk analysis tools. The WEF 2025 Risk Report cannot be faulted for its scientific calculations, nor for its logical structure, but where it goes wrong is in its restrictive assumptions and other priorities. The most relevant critique of the 2025 vintage of the report for is that it is unimaginative and low on holistic thinking. As a senior risk officer at a large hedge fund explained: “I worry about anything and everything that can hurt us. The scientific, mathematical quantitative analysis of market risks is a necessary daily routine that leads to a good risk culture and awareness in our organization. But most of my energy and focus is spent on tapping into intuition, experience and imagination, to find the risks that I have not yet identified but that could have large negative consequences. In this process I don’t care about probabilities, I care about consequences.” The WEF should learn from such broad risk thinking and widen its definition of risk and include intuition and imagination into their process. Otherwise, this and subsequent reports are likely to fit the description by an FX-trader about his use of his employer’s risk report, in the middle of a currency crisis: “Sure… I find it very useful… as fish wrap”