Growing urbanisation brings business risks (continued...)

OTHER RISKS

Climate change is likely to contribute to the trend of urbanisation. Heat waves are forecast to become more frequent in hotter climes, which may turn what was fertile farmland into dustbowls, leaving rural communities with little choice but to head to already-crowded cities.

This migration will be as likely to be across national borders as within them, creating further risks to businesses, says Lloyd’s 360 Risk Insight report Climate Change and Security.

If swathes of farmland in Mexico become arid due to global warming, the displaced people may be more likely to look to cross the border into the US than to move to the teeming barrios of Mexico City. This would likely trigger rising social, political and security tensions both within and between the two nations, the report says.

The growth of sprawling mega-cities creates other risks. Large migrant populations living in slums with poor sanitation and inadequate healthcare mean the threat of outbreaks of disease and pandemics may rise and be more difficult to contain.

Population growth and urbanisation are also set to increase pressure on supplies of food and fresh water at a time when climate change will make it harder to grow food crops in some regions. Already in 2008, riots flared in cities across the world when rice and corn supplies ran low as food production failed to keep pace with the world’s growing population.

All of these potential implications of urbanisation present challenges to businesses that may already operate in these cities, or look to do so in the future.

Urbanisation will present both threats and opportunities to international companies. Rural migration to cities will increase the pool of labour from which a business can choose. But social tensions between city dwellers and migrants for scarce resources and jobs could become an increasing problem, leading to political and religious extremism that could result in violence and terrorism.

The key for businesses will be to understand these demographic shifts so that they may be able to better plan a response to them should they occur. In the same way as insurers must plan for the worst no matter how remote that prospect is, it would make sense for corporates to formulate their business plans on the assumption that at least some of these situations may become reality. It is vital they develop robust risk management strategies for these situations as well as test them and update them regularly as the social landscape changes.

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