Climate change is now seen as one of the defining challenges of the 21st century – and as a global risk with impacts far beyond the environment, warns a recent report from the World Economic Forum. The yearly report on Global Risks concludes that way in which climate change is dealt with at the global level will be a leading indicator of the world’s capacity to manage globalization in an equitable and sustainable way.

Effective mitigation of climate change may ultimately have the consequence of improving resilience to oil price shocks in developed countries by moving them from hydrocarbons to alternative energy sources; ineffective mitigation of climate change will almost certainly be a factor in major interstate and civil wars within the next 50 years.

Overall, the Global Risk Network identified 23 core global risks to the international community over the next 10 years.

Many of the Economic and Environmental risks are tied together:

• Climate change
• Loss of freshwater services
• Natural catastrophe: Tropical storms
• Natural catastrophe: Earthquakes
• Natural catastrophe: Inland flooding
• Oil price shock/energy supply interruptions

The report provides a risk scenario related to climate change, in which catastrophic climate-related events cause major economic disruptions. In “Global Risk Scenario B: Out of the Global Warming Frying Pan and Into the Fiscal Fire”, events in 2007 trigger an inflection point in global concern over the consequences of climate change. From massive flooding in South Asia to oil supply disruptions from hurricanes in the Americas, public concern increases and causes massive government policy responses, including enhanced support for ethanol, which has the unintended effect of raising global food prices.

Another risk identified is freshwater supply. Freshwater is vital to development, yet the mitigation effects of improved water-pricing have yet to have an effect; economic development and global warming have increased the risk to the sustainability of many already stressed freshwater systems worldwide, particularly in Asia.

The report concludes that there has also been major improvement in the understanding of the interdependencies between global risks, the importance of taking an integrated risk management approach to major global challenges and the necessity of attempting to deal with root causes of global risks rather than reacting to the consequences.

Read Global Risks 2007 here (PDF).