5 Key Types of Global Risk

2 July, 2021

the world globe sitting on a desk next to a windowRisk is an ever-present fact of life that underpins each decision we make. At an international scale, how organizations plan for and respond to uncertain scenarios may affect the well-being of entire populations. For example, when Japan was struck by a major earthquake in 2011, the event severely disrupted the global electronics supply chain as component manufacturers were forced to stall production. Given that roughly one-fifth of the world’s technology products rely on Japanese electronics manufacturing, the effects rippled across the global computing, shipbuilding, automotive and sustainable energy industries.

It’s vital to understand the wide variety of factors with the potential to disrupt governments, damage private sector profits, spread diseases, slow recovery from crises, or limit the availability of resources. In addition to incidents like natural disasters, political instability has become a prominent concern for business leaders. As Ernst & Young analysts noted, the uncertainty surrounding the 2020 U.S. presidential election cycle disrupted foreign asset markets, leading to as much as a 4% decline in non-U.S. market indices.

Graduates from a Master of Arts in Global Risk program understand how to analyze threats like these with quantitative and qualitative techniques, as well as how different types of risk interact and compound with each other in this globalized world. By developing rigorous models and evaluating their findings alongside insights from qualitative research, risk management professionals can guide decision-making with a nuanced perspective on the big picture.

Global risk experts build their careers in addressing complex situations with worldwide implications for institutions and livelihoods. In this article, we’ll explore five of the most important forms of risk that professionals need to identify and confront in the coming years.

Key Types of Global Risk
Geopolitical Risk Focused on the opportunities and instability that emerge from relationships among states. Conflicts, diplomatic outreach, and internal strife all have broad implications for the international community and global organizations.
Economic Risk Encompasses a variety of issues in financial and monetary systems with the potential to affect trade, manufacturing and supply chains, bond investments, exchange rates, private sector growth, regulations, and global politics.
Environmental Risk Includes dangers to the health of humans, plants, and animals as well as the possibility of diminished natural resources. These considerations are vital for regulatory compliance and corporate policy.
Societal Risk Takes an expansive perspective on the wide-ranging and long-term effects that catastrophic events like infrastructure collapse, natural disasters, or industrial accidents can have for entire populations.
Technological Risk Considers the consequences to governments and organizations that may result from the complexities of adopting new systems, technical failures, compromised data, mismanagement of resources, and cyberattacks.

Geopolitical Risk

Productive relationships between nations are crucial to coordinate responses to shared challenges, especially in today’s globalized economy. But government agencies, businesses, and nonprofits must also stay alert to the risks that come from areas of conflict and competition. Disputes over borders, human rights, intellectual property, public health, and nuclear proliferation can all present serious challenges for organizations and their suppliers.

Currently, many experts around the globe are concerned about the geopolitical risks posed by instability within states as well as insufficient multilateral cooperation. In a 2020 survey of leadership communities in the World Economic Forum, more than 51% of respondents cited the collapse of states as a critical threat for the next five to 10 years. Further, the report found that the COVID-19 pandemic had exacerbated geopolitical tensions by exposing gaps in access to health services and worsening the economic disadvantages of hard-hit nations.

Global risk students, scholars and professionals must be able to draw on a range of research and analysis tools to successfully address the complexity of these risks. For example, the work of researchers like Professor Erik Jones, the director of the MA in Global Risk program at the Johns Hopkins University School of Advanced International Studies (SAIS), emphasizes the roles of these geopolitical divisions in managing current and future catastrophes.

An expert in European politics, Jones studies the ways international relationships can influence whether nations recover quickly from times of crisis or become overwhelmed by internal struggles. For example, he discussed how the decision of European Union leaders to increase borrowing capacity in response to the pandemic represented a bold commitment but also unleashed a plethora of international disagreements about plans for spending the money and paying it back.

“Europe’s leaders have made an unprecedented decision to borrow money together,” Jones explained. “The greater challenge will be to manage the consequences of that decision. That means working together despite inevitable shortcomings, committing new financial resources even when these fall unevenly across countries, and moving beyond narratives that apologize for what they surrendered to the rest of Europe to those that celebrate what Europeans can accomplish together.”

Economic Risk

Every individual firm or agency must function within a broader economic context, thinking ahead about financial or monetary conditions that might end up hampering entire industries. These changes include a dramatic shift in an exchange rate, newly implemented regulations, a national debt crisis, or political unrest. Through quantitative modeling and analysis, organizations can evaluate whether investments such as bonds will be a safe choice and plan ahead for volatility.

Risk managers may examine a variety of metrics to see how their ventures could be influenced by macroeconomic factors in a nation or trading bloc. For example, a sovereign credit rating indicates an agency’s estimation of how likely a country is to default on meeting its debt obligations. That rating can be influenced by a range of indicators like per capita income, annual growth in gross domestic product, inflation, and the national deficit.

However, it’s vital not to be limited by traditional economic models, which can miss crucial qualitative factors like the cultures of financial institutions. The 2008 financial crisis caught many observers by surprise because they did not account for the way many banks had incentivized risky behavior. A comprehensive risk analysis includes examining poorly designed reward structures and other circumstances that can throw long-term projections into disarray.

The economic interactions among nations have wide-ranging consequences for politics and diplomacy as well as business. Michael Plummer, the director of Johns Hopkins SAIS Europe and a professor of international economics, researches the impact of trade agreements, particularly in Asia. He was lead author of a study on the Association of Southeast Asian Nations (ASEAN) Economic Council that argued for the long-term benefits of eliminating barriers to create an integrated Asia-Pacific regional economy that can exert influence around the world.

“The formal entry into force of the AEC […] should be hailed as the beginning of a process of deepening integration, with the more difficult challenges still to be tackled from impediments to trade in services to the completion of the ASEAN Single Window in customs cooperation and beyond,” Plummer wrote. “The more integrated ASEAN becomes, the better position it will be in to thrive in the 21st century international marketplace.”

Environmental Risk

Dangers to the environment are areas of increasing concern for a wide range of global organizations. Transportation, mining, and land development may contribute to wipe out the habitats of plants and animals, exhaust natural resources, and damage public health. Risk professionals can analyze these situations to not only help businesses and government agencies meet their regulatory obligations, but also support more sustainable strategies and policies.

Chemical hazards are one form of environmental risk with immediate implications for the safety of people on worksites as well as for those living in surrounding areas. The Environmental Protection Agency routinely assesses these environmental risks based on metrics such as:

  • The amount of a chemical expected to contaminate the air, water, or soil
  • That chemical’s level of toxicity
  • How much exposure humans or animals will have to the chemical

As nations around the world strengthen their commitment to fight threats like climate change and cultivate renewable energy sources, environmental risk can greatly influence long-term planning for global organizations. Seeking cleaner solutions often helps organizations eliminate dangers while becoming better global citizens, benefiting from government programs, and promoting their brands to ecologically conscious consumers.

Risk professionals can apply their skills in analysis, modeling, and qualitative research to facilitate these efforts. Close collaboration with experts in environmental science and business leaders results in valuable insights into how manufacturing processes and supply chains may add to carbon emissions or plastic waste.

Societal Risk

A single event, such as an industrial accident or natural disaster, can endanger a whole community, culminating in loss of life, damage to property, and interruptions to essential resources or services. Looking at these issues through a societal risk lens allows experts to consider broad system-level factors that influence how organizations respond.

For example, consider how organizations might respond differently to the same problem, such as a sudden chemical hazard. An organization that prioritized environmental risk would concentrate on removing the immediate danger and strengthening regulatory compliance measures to mitigate future damage. Addressing the same problem with a societal risk perspective means contemplating adjustments to operations and personnel that could prevent similar events.

That’s why it’s necessary for experts to evaluate societal risk when making decisions about land-use planning and public policy. Methods like risk modeling and life cycle analysis can inform the measures taken to manage the possibility of infrastructure collapse, while drawing in broader contextual information refines those assessments and makes response strategies more effective.

Assessing the probability of such a catastrophe and the potential consequences enables organizations to develop more resilient systems and take proactive steps before something goes wrong. That can entail devising robust emergency procedures, forming partnerships with other organizations to manage crisis situations, setting aside funds to cover the costs of repairs, and informing the public about how to respond in case of an incident.

Technological Risk

Digital technology has become integral to almost every aspect of life, and that’s particularly true when it comes to managing international business and political relationships. Concerns that systems might fail due to a technical glitch or be compromised by a cyberattack are ever-present for corporations, financial institutions, and governments. When these organizations fall prey to a data breach, ransomware attack, or phishing scam, the results can involve disastrous economic consequences, like the attack on Colonial Pipeline that disrupted U.S. oil supplies, and international repercussions, as in the SolarWinds hack that compromised both government agencies and private companies.

Risk professionals may not have the technical savvy to fully understand the intricacies of information security, but they work alongside experts in the field to plan mitigation measures and responses. McKinsey demonstrated the complex nature of these demands by breaking information technology risk management into several sub-disciplines:

  • Information and cybersecurity
  • Resilience and disaster recovery
  • Vendor and third-party management
  • Project and change management
  • Architecture, development, and testing
  • Data quality and governance
  • IT compliance

Organizations must adopt a multifaceted approach to prepare for a major cyberattack or internal systems failure. These events could seriously damage a brand’s reputation around the world, and failure to protect confidential information leaves organizations open to civil (and in some jurisdictions even criminal) liability. Risk managers can help to institute unified contingency plans by collaborating with information technology professionals and cybersecurity experts as well as leaders in communications and corporate strategy.

Managing a World of Risk

In our interconnected world, businesses rely on supply chains and labor forces spread across multiple continents while governments cooperate to contend with dangers like the COVID-19 pandemic and climate change. This is why it’s so crucial for risk management professionals to nurture a global, multi-faceted perspective as they analyze our most urgent challenges and promising opportunities.

By discovering data-driven insights, implementing powerful decision-making frameworks, and considering the complexities of globalized interdependencies, experts can guide strategic planning even under highly uncertain conditions. An MA in Global Risk offers the specialized knowledge and quantitative skills necessary to make sense of the geopolitical, economic, environmental, societal, and technological dangers that will shape our world’s future.

About the Master of Arts in Global Risk (online)

In the Johns Hopkins School of Advanced International Studies (SAIS) MA in Global Risk (online) program, students gain a thorough grounding in quantitative and qualitative risk management tools, modeling, and decision-making frameworks. Our cutting-edge curriculum focuses on the specialized knowledge and research skills to analyze complex situations, mitigate dangers, and take on leadership roles.

Featuring a faculty of groundbreaking researchers and experienced leaders, the Johns Hopkins SAIS offers a supportive environment that encourages collaboration and ongoing improvement. Our students participate in two in-person residencies and have opportunities to expand their professional networks. Johns Hopkins University ranks among the top 10 national universities and top 11 global universities, according to U.S. News & World Report and was named one of the best schools for international relations by Foreign Policy Magazine.

Disclaimer: This content has not been peer reviewed and is for informational purposes only.

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