Global Risk Institute

A Riskier World? It’s HereA Global Risks and Trends Framework

May 10, 2017

Lois TulloExecutive in ResidenceStephen HartPrevious CRO BNS

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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.

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Organizational Vision & StrategyRisk Appetite Statement

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.

Global Risks & Trends

Geopolitical

Economic Societal

EnvironmentalTechnologicalKey Strategies & Strategic

Assumptions

Trends

Risks

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 & StrategyRisk Appetite Statement

Key Strategies &

Strategic Assumptions

Global Risks and TrendsEconomic, Environmental,

Geopolitical, SocietalTechnological

R A N KGlobal Risks & Trends

Geopolitical

Economic Societal

EnvironmentalTechnological

Key Insights

Challenge Rankings

Organizational Strategy

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Step 1 & 2Articulate Key Strategies and Assumptions

Step 1: An effective strategy should already have outlined:

Step 2: What GRAFT adds:

1 What is the vision for the organization, why and where is the organization is going?

What are the underlying Geopolitical, Environmental, Economic, Societal, and Technological assumptions that the organization has made in establishing its vision?

2 How will the vision be accomplished? What is the Strategic Plan of the Organization?

What are the Geopolitical, Environmental, Economic, Societal, and Technological assumptions about your team, systems and processes that need to be in place to accomplish your strategy?

3 Are the underlying skills and tools in place to accomplish the tasks at hand?

What are the Societal and Technological skill based assumptions that have been made?

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Bank of Nova Scotia – 2016 - Total assets: $896.5 billion CAD

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Step 2Identify Strategic Assumptions - Examples

1. Current Demographic trends in the population2. Level of Chronic Disease3. History and prediction of infectious diseases4. Maintain credit rating5. Degree of Peace in the countries which they operate, Terrorism levels6. Degree of Social Stability in the countries which they operate7. History and Predicted extreme weather event losses in the countries which they operate8. 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 operate10.Degree of Stability of the Regulatory Environment in the countries which they operate11.Degree of Reliable of the infrastructure (Power, telecommunications, water, etc.) in the countries which they operate12.Degree of Stability in the computer systems 13.Degree of Freedom of movement of and security of information in the countries which they operate14.Degree of freedom of movement of individuals in the countries in which they operate15.Degree of Stability and liquidity in FX markets in the countries which they operate16.Stability and liquidity in Equity markets in the countries which they operate17.Stability and liquidity in bond markets in the countries which they operate18.Moderately rising interest rates in the countries which they operate19.Access to skilled workforce in the countries which they operate20.Law abiding workforce in the countries which they operate

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Step 3 Collective Understanding of Global Risks & TrendsGeopoliticalRisks1. Terrorist Attacks2. Interstate Conflict3. Failure of national governance4. Weapons of Mass Destruction5. State Collapse or Crisis6. Failure of Regional or Global

Governance

Fragile State Map 2016

Trends1. Increasing National

Sentiments2. Changing Landscape of

International Governance

Geopolitical Concerns1. Syrian War2. Russia and Crimea3. China and the South Sea4. Brexit5. US uncertainty6. North Korea missile firing in Japan Sea

Political Uncertainty1. Turkey’s vote2. France’s election3. Germany’s election4. China’s election

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Step 3 Collective Understanding of Global Risks & TrendsSocietal

Trends1. Increasing polarization of

societies2. Aging Population3. Rising Urbanization4. Rising Geographic Mobility5. Rising Chronic Diseases

Risks1. Large-scale involuntary

migration2. Water Crisis3. Food Crisis4. Profound Social Instability5. Spread of Infectious

Diseases

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Step 3 Collective Understanding of Global Risks & TrendsEconomicRisks1. Unemployment and

Underemployment2. Fiscal Crisis/Sovereign

Debt3. Asset Bubble4. Failure of Financial

Mechanism or Institution

5. Illicit Trade6. Energy/Commodity

Price Shock7. Deflation and Inflation

Trends1. Rising Income and Wealth

Disparity2. Growing Middle Class in

Emerging Economies

World Unemployment

Percentile Unemployment by Country

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Step 3 Collective Understanding of Global Risks & Trends Technological Risk

1. Cyberattacks2. Data Fraud or Theft3. Failure of Critical Infrastructure/Information

Infrastructure Breakdown4. 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

Trend1. The Rise of Cyber Dependency

Seven Hours of Screen Use on Average Daily

0 100 200 300 400 500

Daily Screen UseMinutes

Smart Phone TV Laptop Tablet

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Step 3 Collective Understanding of Global Risks & Trends

EnvironmentalTrends1. Climate Change2. Environmental

Degradation

Risks1. Extreme Weather Events2. Natural Disasters3. Failure of Climate-Change

Mitigation and Adaption4. Man-Made Environmental

Disaster5. Biodiversity Loss and

Ecosystem Collapse

Climate Change Effect

Flooding In China

CO2 levels dangerously high

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

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Step 4 & 5 - Rank, Prioritize & Map Global Risk and Trends

Urgency

Immediate 30 years3 – 5 years

Impact

High

High

Low

Low

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Step 6 – Identify Correlations

GRAFT Correlation Matrix Tool

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Step 6 - Example Correlation, Scenario and Key Insights

Correlation

Geopolitical

EconomicSocietal

EnvironmentalTechnological

Failure of National Governance

Rising Cyber DependencyData Fraud/Theft

Terrorist Attacks

Failure of Critical Information Infrastructure

Cyber Attacks

Fiscal Crisis / Sovereign Debt Inflation / Deflations

Aging Population / Young Population

Increasing National SentimentRising Income & Wealth

Disparity

Increasing Polarization of Society

Climate Change (Regulation)

Extreme Weather Events

Natural Disasters

Unemployment / Underemployment

Failure of Regional or Global Governance

Involuntary Migration

Growing Middle Class in Emerging Economies

Asset Bubble

Illicit Trade

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Step 8 & 9 - Apply Key Insights

Organizational Vision & StrategyRisk Appetite Statement

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.

Global Risks & Trends

Geopolitical

Economic Societal

EnvironmentalTechnologicalKey Strategies & Strategic

Assumptions

Trends

Risks

Urgency

Impact

GRAFT