Global Risk Institute A Risk skier W World? I ? It’s He s Here A Global R Risk sks s and T nd Tren ends F Framework May 10, 2017 Lois Tullo Executive in Residence Stephen Hart Previous CRO BNS
Global Risks and Trends Framework (GRAFT) What is it? A systematic process and tools to evaluate the synergistic impact of Global Risks • and Trends. 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. 2
Overview of Global Risks and Trends Framework Organizational Vision & Strategy Risk Appetite Statement Geopolitical GRAFT T r e Economic Societal n d s Impact Global Risks R is & Trends k s Key Strategies Environmental Technological Urgency & Strategic Assumptions Examples of Key Insights - Increased National Sentiment, State Conflict, and Weapons of Mass Destruction resulting in increasing strain on 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 factory slow and shutdowns. 3
How to Apply the Global Risks and Trends Framework Organizational Strategy 1.Articulate 9. Adjust the Key Organizational Vision & Strategy Organizational Strategies Risk Appetite Statement Strategies Key Insights 2. Identify 8. Compare Key Strategic Insights to Assumptions Strategies Key Strategies & Strategic Assumptions 3. Review & 7. Challenge Understand Challenge Rankings Ranking Global Risks and Trends Global Risks and Trends Economic, Environmental, Geopolitical, Societal 4. Rank Technological 6. Identify and Correlations, Prioritize Geopolitical Scenarios and Global 5. Map Key Insights Risks and Global Societal Economic Trends Risks and R A N K Global Trends on Risks & to GRAFT Trends Environmental Technological 4
Step 1 & 2 Articulate Key Strategies and Assumptions Step 1: An effective Step 2: What GRAFT adds: strategy should already have outlined: 1 What is the vision for the What are the underlying Geopolitical, Environmental, organization, why and where Economic, Societal, and Technological assumptions is the organization is going? that the organization has made in establishing its vision? 2 How will the vision be What are the Geopolitical, Environmental, Economic, accomplished? What is the Societal, and Technological assumptions about your Strategic Plan of the team, systems and processes that need to be in place Organization? to accomplish your strategy? 3 Are the underlying skills and What are the Societal and Technological skill based tools in place to accomplish assumptions that have been made? the tasks at hand? 5
Bank of Nova Scotia – 2016 - Total assets: $ 896.5 billion CAD 6
Step 2 Identify Strategic Assumptions - Examples 1. Current Demographic trends in the population 2. Level of Chronic Disease 3. History and prediction of infectious diseases 4. Maintain credit rating 5. Degree of Peace in the countries which they operate, Terrorism levels 6. Degree of Social Stability in the countries which they operate 7. History and Predicted extreme weather event losses in the countries which they operate 8. Degree of stability of the Government in the countries in which they operate (longevity, privatization, corruption, debt) 9. Degree of the effect of Rule of Law in the countries in which they operate 10.Degree of Stability of the Regulatory Environment in the countries which they operate 11.Degree of Reliable of the infrastructure (Power, telecommunications, water, etc.) in the countries which they operate 12.Degree of Stability in the computer systems 13.Degree of Freedom of movement of and security of information in the countries which they operate 14.Degree of freedom of movement of individuals in the countries in which they operate 15.Degree of Stability and liquidity in FX markets in the countries which they operate 16.Stability and liquidity in Equity markets in the countries which they operate 17.Stability and liquidity in bond markets in the countries which they operate 18.Moderately rising interest rates in the countries which they operate 19.Access to skilled workforce in the countries which they operate 20.Law abiding workforce in the countries which they operate 7
Step 3 Collective Understanding of Global Risks & Trends Geopolitical Geopolitical Concerns Political Uncertainty Risks 1. Syrian War 1. Turkey’s vote 1. Terrorist Attacks 2. Russia and Crimea 2. France’s election 2. Interstate Conflict 3. China and the South Sea 3. Germany’s election 3. Failure of national governance 4. Brexit 4. China’s election 4. Weapons of Mass Destruction 5. US uncertainty 5. State Collapse or Crisis 6. North Korea missile firing in Japan Sea 6. Failure of Regional or Global Governance Trends 1. Increasing National Sentiments 2. Changing Landscape of International Governance Fragile State Map 2016 8
Step 3 Collective Understanding of Global Risks & Trends Societal Trends Risks 1. Increasing polarization of 1. Large-scale involuntary societies migration 2. Aging Population 2. Water Crisis 3. Rising Urbanization 3. Food Crisis 4. Rising Geographic Mobility 4. Profound Social Instability 5. Rising Chronic Diseases 5. Spread of Infectious Diseases 9
Step 3 Collective Understanding of Global Risks & Trends Economic Risks Trends 1. Unemployment and 1. Rising Income and Wealth Underemployment Disparity 2. Fiscal Crisis/Sovereign 2. Growing Middle Class in Debt Emerging Economies 3. Asset Bubble 4. Failure of Financial Percentile Unemployment by Country Mechanism or Institution 5. Illicit Trade 6. Energy/Commodity Price Shock 7. Deflation and Inflation World Unemployment 10
Step 3 Collective Understanding of Global Risks & Trends Technological Risk Seven Hours of Screen Use on Average Daily 1. Cyberattacks Daily Screen Use 2. Data Fraud or Theft Trend Minutes 3. Failure of Critical Infrastructure/Information 1. The Rise of Cyber Dependency Infrastructure Breakdown 0 100 200 300 400 500 4. Adverse Effects of Technical Advances Smart Phone TV Laptop Tablet 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 11
Step 3 Collective Understanding of Global Risks & Trends Environmental Climate Change Effect CO2 levels dangerously high Trends 1. Climate Change 2. Environmental Degradation Risks Flooding In China 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 https://www.ipcc.ch/ipccreports/tar/wg1/088.htm 12
Step 4 & 5 - Rank, Prioritize & Map Global Risk and Trends Low High Impact Low High 3 – 5 years 30 years Immediate Urgency 13
Step 6 – Identify Correlations GRAFT Correlation Matrix Tool 14
Step 6 - Example Correlation, Scenario and Key Insights Failure of Regional or Global Governance Failure of National Governance Terrorist Attacks Geopolitical Increasing National Sentiment Rising Income & Wealth Growing Middle Class in Disparity Emerging Economies Aging Population / Involuntary Migration Young Population Illicit Trade Economic Societal Fiscal Crisis / Increasing Inflation / Deflations Polarization of Society Sovereign Debt Correlation Unemployment / Asset Bubble Underemployment Rising Cyber Dependency Climate Change Data Fraud/Theft Natural Disasters (Regulation) Technological Environmental Cyber Attacks Extreme Weather Failure of Critical Information Events Infrastructure 15
Step 8 & 9 - Apply Key Insights Organizational Vision & Strategy Risk Appetite Statement Geopolitical GRAFT T r e Economic Societal n d s Impact Global Risks R is & Trends k s Key Strategies Environmental Technological Urgency & Strategic Assumptions Examples of Key Insights - Increased National Sentiment, State Conflict, and Weapons of Mass Destruction resulting in increasing strain on 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 factory slow and shutdowns. 16
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