Global Risks And Trends Frameworks October 3, 2018 Lois Tullo - - PowerPoint PPT Presentation

1 Global Risk Institute

Global Risks And Trends Frameworks

October 3, 2018

Lois Tullo Executive-in-Residence

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GRAFT helps addresses the question of:

“How do we make sense of our changing world?”

22 Cyberattacks Increasing National Sentiments Asset Bubble US Governance Uncertainty Fiscal Crisis/ Sovereign Debt Illicit Trade Inflation Migration Continues Russian Ukraine Conflict South Sudan Drought / Conflict Syrian Conflict Increasing Global Cyber Dependence Extreme Weather Events Yemen Crisis Increasing Urbanization

• N. Korea Weapons Testing

South China Sea Conflict Japanese Earthquakes Aging Population Climate Change - Rising CO2 levels Income & Wealth Disparity Increasing Polarization of Society

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Global Risks and Trends Framework (GRAFT)

What is it?

GRAFT is a new approach designed to help organizations identify, assess and respond to global risks and trends.

• Used in order to avoid pitfalls that could threaten an organization’s

long-term survival or conversely to leverage for the benefit of the

• rganization.

A method that:

• Compares the assumptions supporting your strategic plan with the

correlations of prioritized Global Risks and Trends to identify Key Insights for the organization;

• Promotes a shared understanding of the implications of Global

Risks and Trends on your organization’s strategic plan; and

• Enables directors to make more informed decisions.

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Organizational Vision & Strategy Risk Appetite Statement

Key Insights

New and profound insights regarding the interplay of risk and trends to enlighten and enhance strategic decision making

Global Risks & Trends

Geopolitical Economic Societal Environmental Technological

Key Strategies & Strategic Assumptions

T r e n d s R i s k s

Urgency Impact

GRAFT

Overview of Global Risks and Trends Framework

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1.Articulate Key Strategies

• 2. Identify

Strategic Assumptions

• 3. Review &

Understand Global Risks and Trends

• 4. Rank

and Prioritize Global Risks and Trends

• 5. Map

Global Risks and Trends on to GRAFT

• 6. Identify

Correlations, Scenarios and Key Insights

• 7. Challenge

Ranking

• 8. Compare Key

Insights to Strategies

• 9. Adjust the

Organizational Strategies

How to Apply the Global Risks and Trends Framework

Organizational Vision & Strategy Risk Appetite Statement

Key Strategies & Strategic Assumptions

Global Risks and Trends Economic, Environmental, Geopolitical, Societal Technological

R A N K

Global Risks & Trends

Geopolitical Economic Societal Environmental Technological Key Insights Challenge Rankings Organizational Strategy

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Step 3 Collective Understanding of Global Risks & Trends

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A “Global Risk” is an uncertain event or condition that, if it occurs, can cause significant negative impact for several countries or industries within the next 10 years. A “Global Trend” is defined in the World Economic Forum’s Report as a long-term pattern that is currently taking place and that could contribute to amplifying global risks and/or altering the relationship between them. Unlike risks, trends are occurring with certainty and can have both positive and negative

• consequences. Trends can alter how risks evolve and interrelate, and they inform efforts at

risk mitigation. Global Risks and Trends are summarized into 5 risk clusters that include: Economic, Environmental, Geopolitical, Societal, and Technological.

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Step 3 Collective Understanding of Global Risks & Trends

Geopolitical

Risks 1.Terrorist Attacks 2.Interstate Conflict 3.Failure of national governance 4.Weapons of Mass Destruction 5.State Collapse or Crisis

• 6. Failure of Regional or Global Governance

Fragile State Map 2016

Trends

• 1. Increasing National Sentiments
• 2. Changing Landscape of

International Governance

Geopolitical Concerns

• 1. US uncertainty
• 2. Syrian War
• 3. Russia and Crimea
• 4. China and the South Sea
• 5. Brexit
• 6. North Korea missile firing in Japan Sea

Political Uncertainty

• 1. US election
• 2. Taiwanese election
• 3. Irish election
• 4. Brazil election

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Step 3 Collective Understanding of Global Risks & Trends Societal Trends

• 1. Increasing polarization of societies
• 2. Aging Population
• 3. Rising Urbanization
• 4. Rising Geographic Mobility
• 5. Rising Chronic Diseases

Risks 1.Large-scale involuntary migration 2.Water Crisis 3.Food Crisis 4.Profound Social Instability 5.Spread of Infectious Diseases

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Step 3 Collective Understanding of Global Risks & Trends Economic

Risks 1.Unemployment and Underemployment 2.Fiscal Crisis/Sovereign Debt 3.Asset Bubble 4.Failure of Financial Mechanism or Institution 5.Illicit Trade 6.Energy/Commodity Price Shock 7.Deflation and Inflation

Trends

1.Rising Income and Wealth Disparity 2.Growing Middle Class in Emerging Economies

World Unemployment

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Step 3 Collective Understanding of Global Risks & Trends

Technological

Risk

• 1. Cyberattacks
• 2. Data Fraud or Theft
• 3. Failure of Critical Infrastructure/Information Breakdown
• 4. Adverse Effects of Technical Advances

DDOF Peak size and frequency of Attacks have increased dramatically in 2016

https://pages.arbornetworks.com/rs/082-KNA-087/images/12th_Worldwide_Infrastructure_Security_Report.pdf

Trend

• 1. The Rise of Cyber Dependency

Seven Hours of Screen Use on Average Daily

100 200 300 400 500

Daily Screen Use Minutes Smart Phone TV Laptop Tablet

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Step 3 Collective Understanding of Global Risks & Trends

Environmental

Trends

• 1. Climate Change
• 2. Environmental Degradation

Risks

• 1. Extreme Weather Events
• 2. Natural Disasters
• 3. Failure of Climate-Change

Mitigation and Adaption

• 4. Man-Made Environmental

Disaster

• 5. Biodiversity Loss and

Ecosystem Collapse

Climate Change Effect

Flooding

CO2 levels dangerously high

https://www.ipcc.ch/ipccreports/tar/wg1/088.htm

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Urgency

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Step 4 & 5 – Financial Institution: Rank, Prioritize & Map Global Risk and Trends

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Step 6 – Identify Correlations

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In Class Exercise: Identify Correlations

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RISK & Correlation

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Step 7 - Example Correlation, Scenario and Key Insights

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Primary Risk or Trend Identify Correlated Risk or Trend Magnitude of Correlation and Implication KEY INSIGHTS - Events or Potential Events Stemming from Correlation of Trends and Risks Inflation/ Rate Hikes Inflation/ Rate Hikes

• Increasing inflation could lead the

Bank of Canada to continue increase interest rates.

• While inflation has been low, Q2

Canadian GDP increased by 4.5% and September gasoline prices increase by 10 – 20 cents per litre.

• Each 25 bp rise in the lending rate

equates to approximately $50 increase in interest payments on the average Canadian mortgage.

• 30% of borrowers cannot afford

even a 1% increase in interest rates, increasing likelihood of loan payment arrears or defaults. Even if Canada’s inflation remains low, the Bank of Canada may continue to increase rates (to encourage continued investment in Canadian debt securities) as a result

• f rate hikes in other

countries.

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Step 7 - Example Correlation, Scenario and Key Insights

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Primary Risk

• r Trend

Identify Correlated Risk or Trend Magnitude of Correlation and Implication KEY INSIGHTS - Events or Potential Events Stemming from Correlation of Trends and Risks Inflation/ Rate Hikes Asset Bubble

• Housing prices have increased by
• ver 30% in the last year in major
• markets. A recent foreign buyers’

tax is cooling the Greater Toronto Area market, and is increasing the risk of the housing bubble bursting.

• High ratio loans extended in the last

year are at risk of negative equity if prices fall by more than 10%. Negative equity combined with inflation-driven interest rate increases that strain

• verextended borrowers’

capacity to make payments could result in higher loan losses. Inflation / Asset Bubble Sovereign Debt/ Mortgage Debt

• Canadian Debt to GDP levels are at

all-time highs.

• Increasing inflation may lead to

increased interest rates, straining repayment capacity.

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Step 8 & 9 - Apply Key Insights

Examples of Key Insights

Key Strategies and Strategic Assumptions

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Strategy Timing Business Landscape Competitive Advantage To be a leader in the Canadian Residential mortgage market (prime and subprime) with expansion into provision of mortgages with a fintech AI interface for adjudication. Grow assets under management by 15% by 2019, maintain and manage a strong liquidity position of

• ver $2B.

Expand footprint in Alberta. Maintain and grow deposits by 15% by 2019, to over $2B. Maintain NPL ratio under 0.30%. Increase LLP by 15%. Enhanced Customer experience for all Canadians, provided through a fintech interface, and supported by a risk management foundation.

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Organizational Vision & Strategy Risk Appetite Statement Examples of Key Insights

• Increased National Sentiment, State Conflict, and Weapons of Mass Destruction resulting in increasing strain
• n trade talks, potential disruption to supply chains, and reduced M&A and IPO volumes.
• Climate Change, Increasing Extreme Weather Events, and Water Crisis causing roaming black and brown outs,

resulting in refinery shutdowns effecting commodity prices and foreign exchange rates. Global Risks & Trends

Geopolitical Economic Societal Environmental Technological

Key Strategies & Strategic Assumptions

T r e n d s R i s k s

Urgency Impact

GRAFT

Step 8 & 9 - Apply Key Insights

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RBC Brian Geiger

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CPPIB Steven Richards

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Ontario Government – Gary Wuschnakowski Paul Weitzmann

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Manulife – Kerry Reinke

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Discussion & Next Steps

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