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Executive Summary

Jason Channell

Elizabeth Curmi

Ying Qin

<h2>Systemic Solutions for an Increasingly Interconnected World</h2>
<h3>Risk is an ever-present fact of life. Yet as our world becomes more globalized and interconnected, we have inadvertently built systems which have not just the ability to transmit those risks across geographies and turn them from local into global phenomena, but which also have the ability to cause further global crises to materialize. Moreover, these crises are arguably more &lsquo;existential&rsquo; in nature than ever before &mdash; have we ever knowingly faced a planetary threat as critical as the one climate change presents?</h3>
In the report that follows, we examine the nature of &lsquo;systemic risk&rsquo;, identifying a Global Risk Nexus of 10 key systemic risks, from climate change to biodiversity loss and natural disasters, through antimicrobial resistance, human and agricultural pandemics, to cyber risk and global governance failure, and ultimately global economic and financial crises. We also examine the interlinkages between those risks, for example, how climate change can drive biodiversity loss, with the potential to impact global food chains and financial and economic crises. These risks can seem so overwhelmingly large and complex in their nature, it is easy to become resigned to our powerlessness to understand and quantify them, let alone to try to prevent them. Yet as John Dryden observed in the 17th century, &lsquo;It is madness to make fortune the mistress of events, because by herself she is nothing, and is ruled by prudence.&rsquo; His words ring as true today as they did then &mdash; many of the issues facing us are not in fact unprecedented. With a prudent approach we can analyze and quantify them, predict their severity or frequency, and even prevent them. This report has been written in conjunction with the Centre for Risk Studies at Cambridge University, with further contributions from thought leaders in the world of risk including Dame Inga Beale and Mark Carney. In the report we assess the quantum of systemic risks, their interlinkages, and by examining the barriers to addressing them, propose solutions for not just adapting to them, but to mitigating and even preventing them. We look at how individual entities from corporates and supranationals to sovereigns can analyze and address systemic risk via scenario analysis and stress testing, as well as proposing broader systemic solutions. The very feedback loops which make these risks systemic in their nature can be turned against them, providing positive feedback loops which, by preventing one, can reduce the probability or severity of another. We examine how vast pools of capital could be created and turned to the prevention of the very risks to which they seek to adapt, thereby reducing the probability and severity of those risks. We identify $3 trillion per year of investment opportunities which could reduce the probability, frequency, and severity of these systemic risks &mdash; a vast sum to be sure, but one which pales into insignificance against the tens of trillions of dollars in liabilities which could potentially be avoided. If this argument in itself were not compelling enough, many of the prevention and mitigation measures have the ability to drive economic growth, with significant multiplier effects of up to 15 times. These would be attractive against any economic backdrop, but against the current global economic malaise of secular stagnation and ultra-low returns across all asset classes, it is surely an opportunity we cannot afford to pass up. We can either worry about the future and deal with it when it comes &mdash; if indeed we can &mdash; or tackle these risks head on, embrace the very feedback loops which make them systemic, save trillions of dollars, and drive economic growth in the process. &nbsp; &nbsp; Authors: Jason Channell,Elizabeth Curmi,Ying Qin,

Globalization has not only brought about a plethora of economic benefits and an increase in interconnectedness, but also an increased risk of systemic risk. Whereas risk previously was localized, the new global systems built through globalization allows for these risks to be transmitted across geographies and turn them into global crises. Although systemic risks seem overwhelmingly large, we believe by identifying and quantifying these systemic risks, we can not only adapt to them but also make investments to prevent and mitigate them. We identify $3 trillion per year of investment opportunities which could reduce the probability, frequency and severity of systemic risks — a large number, but it pales in comparison to the tens of trillions of dollars in liabilities which could be avoided.

Systemic Risk - CitiGPS

In this report, we examine the nature of ‘systemic risk’, identifying a Global Risk Nexus of 10 key systemic risks, from climate change to biodiversity loss and natural disasters, through antimicrobial resistance, human and agricultural pandemics, to cyber risk and global governance failure, and ultimately global economic and financial crises. 

Systemic Solutions for an Increasingly Interconnected World

The Centre for Risk Studies at the University of Cambridge Judge Business School provides frameworks for recognising, assessing and managing the impacts of systemic threats. The research programme is concerned with catastrophes and how their impacts ripple across an increasingly connected world with consequent effects on the international economy, financial markets, firms in the financial sectors and global corporations. To test our research outputs and guide our research agenda, the Centre engages with the business community, government policy makers, regulators and industry bodies.

University of Cambridge Judge Business School

Walter H Pritchard

Catherine T O’Neill

Arvind Purushotham

Elizabeth Petrie

Jeremy E Benatar

Andrew Coburn

Tamara Evans

Charlotte Branfield

Teresa Chan

Justin Deck

Nancy Glynn

Brendan Goode

Alyson Krause

Steven Landes

Danielle J Meah

Yogesh Mudgal

Lauren Podber

Michael Polscer

David Rose

Rajesh Shenoy

Sadly, as with most things in life, technology isn&rsquo;t always as good as it seems. For all the same reasons the technology is a positive &ndash; the interconnectedness, the shared environment, the increased speed and efficiency &ndash; it is also a negative. Specifically, technology can be used as a tool for criminal behavior that puts individuals, corporations, and governments at risk of cyber breaches. It is estimated that cyber breaches cost the global economy $1.5 trillion per year, and this is expected to increase, with some sources believing it could cost the global economy a staggering $6 trillion by 2021. The increasing scale of cyber breaches means it has now become necessary for organizations to mature beyond a basic reactive defensive approach on cyber, to an intelligence-led, proactive one. To be intelligence-led is to know both yourself and your enemy. This means knowing what your critical assets are and who may have the motivation and capability to threaten those assets. So how are governments, corporations, and individuals tackling such risks? Governments have started to take cyber attacks more seriously. In fact many countries such as the U.S. and U.K. have set up national agencies dedicated solely to protecting government assets from cyber attacks. One particular concern involves cyber attacks on critical infrastructure systems. On the corporate side, many organizations are now asking themselves when an attack will occur, not if. As such, it is critical for a company to analyze and understand all potential points of cyber impact. We argue that taking an intelligence-led approach is the solution. Corporates should evolve to an active defense strategy but understanding the key drivers of cyber and building an effective security program through strong partnerships between their business lines and risk management teams. Technology can also form part of the solution. As the corporates shift their technology needs from on-premise to cloud, we are seeing an impact in the security solutions market, with hyper-scale cloud providers potentially playing a role in addressing security challenges. We note virtual/cloud form-factors of traditional products, like firewalls, will likely become important, as will new technologies such as cloud-based security brokers (CASB). Emerging tech solutions such as artificial intelligence, machine learning, blockchain, behavioral biometrics, and others can also provide an enhanced ability to predict and analyze threats and detect and stop cyber attacks &mdash; all at a speed and scale that would not have been possible without their use. The risk of cyber attacks is most likely growing vs. subsiding and having an intelligence-led approach will be critical to getting ahead of new threats. As an FBI agent recently said at a conference &ldquo;The goal is to avoid a massive loss either in a business line at a corporate or in a personal account because someone clicked on a dancing kitty.&rdquo; Human intelligence&hellip; Authors: Elizabeth Petrie,Walter H Pritchard, CFA,Elizabeth Curmi,Jeremy E Benatar, CFA,Catherine T O&rsquo;Neill,Dr. Andrew Coburn,Tamara Evans,Arvind Purushotham,Charlotte Branfield,Teresa Chan,Justin Deck,Nancy Glynn,Brendan Goode,Alyson Krause,Steven Landes,Danielle J Meah,Yogesh Mudgal,Lauren Podber,Michael Polscer,David Rose,Rajesh Shenoy,Authors: Elizabeth Petrie,Walter H Pritchard, CFA,Elizabeth Curmi,Jeremy E Benatar, CFA,Catherine T O&rsquo;Neill,Dr. Andrew Coburn,Tamara Evans,Arvind Purushotham,Charlotte Branfield,Teresa Chan,Justin Deck,Nancy Glynn,Brendan Goode,Alyson Krause,Steven Landes,Danielle J Meah,Yogesh Mudgal,Lauren Podber,Michael Polscer,David Rose,Rajesh Shenoy,Authors: Elizabeth Petrie,Walter H Pritchard, CFA,Elizabeth Curmi,Jeremy E Benatar, CFA,Catherine T O&rsquo;Neill,Dr. Andrew Coburn,Tamara Evans,Arvind Purushotham,Charlotte Branfield,Teresa Chan,Justin Deck,Nancy Glynn,Brendan Goode,Alyson Krause,Steven Landes,Danielle J Meah,Yogesh Mudgal,Lauren Podber,Michael Polscer,David Rose,Rajesh Shenoy,Authors: Elizabeth Petrie,Walter H Pritchard, CFA,Elizabeth Curmi,Jeremy E Benatar, CFA,Catherine T O&rsquo;Neill,Dr. Andrew Coburn,Tamara Evans,Arvind Purushotham,Charlotte Branfield,Teresa Chan,Justin Deck,Nancy Glynn,Brendan Goode,Alyson Krause,Steven Landes,Danielle J Meah,Yogesh Mudgal,Lauren Podber,Michael Polscer,David Rose,Rajesh Shenoy,Authors: Elizabeth Petrie,Walter H Pritchard, CFA,Elizabeth Curmi,Jeremy E Benatar, CFA,Catherine T O&rsquo;Neill,Dr. Andrew Coburn,Tamara Evans,Arvind Purushotham,Charlotte Branfield,Teresa Chan,Justin Deck,Nancy Glynn,Brendan Goode,Alyson Krause,Steven Landes,Danielle J Meah,Yogesh Mudgal,Lauren Podber,Michael Polscer,David Rose,Rajesh Shenoy,Authors: Elizabeth Petrie,Walter H Pritchard, CFA,Elizabeth Curmi,Jeremy E Benatar, CFA,Catherine T O&rsquo;Neill,Dr. Andrew Coburn,Tamara Evans,Arvind Purushotham,Charlotte Branfield,Teresa Chan,Justin Deck,Nancy Glynn,Brendan Goode,Alyson Krause,Steven Landes,Danielle J Meah,Yogesh Mudgal,Lauren Podber,Michael Polscer,David Rose,Rajesh Shenoy,Authors: Elizabeth Petrie,Walter H Pritchard, CFA,Elizabeth Curmi,Jeremy E Benatar, CFA,Catherine T O&rsquo;Neill,Dr. Andrew Coburn,Tamara Evans,Arvind Purushotham,Charlotte Branfield,Teresa Chan,Justin Deck,Nancy Glynn,Brendan Goode,Alyson Krause,Steven Landes,Danielle J Meah,Yogesh Mudgal,Lauren Podber,Michael Polscer,David Rose,Rajesh Shenoy,Authors: Elizabeth Petrie,Walter H Pritchard, CFA,Elizabeth Curmi,Jeremy E Benatar, CFA,Catherine T O&rsquo;Neill,Dr. Andrew Coburn,Tamara Evans,Arvind Purushotham,Charlotte Branfield,Teresa Chan,Justin Deck,Nancy Glynn,Brendan Goode,Alyson Krause,Steven Landes,Danielle J Meah,Yogesh Mudgal,Lauren Podber,Michael Polscer,David Rose,Rajesh Shenoy,Authors: Elizabeth Petrie,Walter H Pritchard, CFA,Elizabeth Curmi,Jeremy E Benatar, CFA,Catherine T O&rsquo;Neill,Dr. Andrew Coburn,Tamara Evans,Arvind Purushotham,Charlotte Branfield,Teresa Chan,Justin Deck,Nancy Glynn,Brendan Goode,Alyson Krause,Steven Landes,Danielle J Meah,Yogesh Mudgal,Lauren Podber,Michael Polscer,David Rose,Rajesh Shenoy,Authors: Authors: Elizabeth Petrie,Walter H Pritchard, CFA,Elizabeth Curmi, PhD.,Jeremy E Benatar, CFA,Catherine T O&rsquo;Neill,Dr. Andrew Coburn,Tamara Evan,Arvind Purushotham,Charlotte Branfield,Teresa Chan,Justin Deck,Nancy Glynn,Brendan Goode,Alyson Krause,Steven Landes,Danielle J Meah,Yogesh Mudgal,Lauren Podber,Michael Polscer,David Rose,Rajesh Shenoy,Authors: Elizabeth Petrie,Walter H Pritchard, CFA,Elizabeth Curmi, PhD.,Jeremy E Benatar, CFA,Catherine T O&rsquo;Neill,Dr. Andrew Coburn,Tamara Evan,Arvind Purushotham,Charlotte Branfield,Teresa Chan,Justin Deck,Nancy Glynn,Brendan Goode,Alyson Krause,Steven Landes,Danielle J Meah,Yogesh Mudgal,Lauren Podber,Michael Polscer,David Rose,Rajesh Shenoy,Authors: Elizabeth Petrie,Walter H Pritchard, CFA,Elizabeth Curmi, PhD.,Jeremy E Benatar, CFA,Catherine T O&rsquo;Neill,Dr. Andrew Coburn,Tamara Evan,Arvind Purushotham,Charlotte Branfield,Teresa Chan,Justin Deck,Nancy Glynn,Brendan Goode,Alyson Krause,Steven Landes,Danielle J Meah,Yogesh Mudgal,Lauren Podber,Michael Polscer,David Rose,Rajesh Shenoy,

A Practical Approach

For years we’ve been told stories about how technology was going to make our lives better. And for the most part, it has. We can work more efficiently, work from remote locations, and transact business across the globe with a few keystrokes on a computer. On the personal side we can video chat with our loved ones, track our heart rate and exercise goals on a wrist watch, and control the lights, the thermostat, and see who’s ringing the doorbell at our home all from an app on our mobile device.

Managing Cyber Risk with Human Intelligence

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