TOP RISKS – WORLD AND BRAZIL – PART 2

Natural Resources and Biodiversity Risks

The increasing severity of global warming and its direct correlation with biodiversity and natural resource risks have placed these issues among the most critical concerns worldwide. Experts rank biodiversity and resource challenges as the sixth most pressing risk globally. Climate change amplifies threats like natural disasters and biodiversity loss, disrupting ecosystems and diminishing resources. Despite the heightened awareness of these risks, public authorities often lack adequate preparedness to tackle them. Surveys reveal a stark contrast in perceptions: while 36% of the general public believe authorities are prepared for emergencies, only 10% of experts share this optimism. The AXA Future Risks Report 2024 emphasizes the interconnected nature of these challenges. Natural resource depletion and biodiversity loss are intricately linked with climate change, requiring integrated approaches to mitigate their impacts.

In 2024, Brazil experienced its worst drought on record since the beginning of the current historical series in 1950. According to an index measuring rainfall and plant evapotranspiration, the current drought surpassed those of 1998 and 2015/2016. This severe drought affected over 5 million square kilometers—58% of Brazil’s territory and 500,000 square kilometers more than in 2015. The prolonged dry conditions led to widespread wildfires, many of which were exacerbated by arson, resulting in significant financial losses, air pollution, the closure of industries and services, and the paralysis of critical road networks. In São Paulo state alone, crop losses amounted to at least R$500 million. From January to August 2024, Brazil recorded 159,411 fires—a staggering 104% increase compared to the previous year.

Wildfires, whether natural or human-induced, are among the greatest threats to Brazil’s biodiversity, with the Cerrado biome being the most affected^[1]. According to the Intergovernmental Panel on Climate Change (IPCC), if global temperatures rise by 1.7°C above pre-industrial levels, between 38% and 45% of Cerrado plant species face extinction. Tropical forests, including the Pantanal, are also at significant risk, with species extinction likely in agricultural areas under these warming scenarios. In this fragile environmental context, organizations must remain alert, integrating ecological issues into their strategic planning. Climate change accelerates biodiversity loss and heightens the risk of resource scarcity, demanding adaptive measures. Deforestation, wildfires, and habitat destruction call for tailored sustainability initiatives. Collaborating with environmental stakeholders and closely monitoring regulatory and ecological shifts are essential for proactive and responsive strategies, enabling businesses to navigate the complexities of a rapidly evolving natural landscape.

Energy Risks

Energy risks have emerged as a critical concern in the global risk landscape, highlighted by their inclusion in AXA’s Future Risks Report 2024. Ranked among the top ten risks by experts and the general public, energy risks reflect the growing pressures on global energy systems due to climate change, geopolitical tensions, and the rapid pace of technological advancements. The transition to renewable energy sources presents significant challenges, particularly in terms of investment, infrastructure development, and risk management. As the world strives to meet sustainability goals, ensuring a steady and reliable energy supply becomes increasingly complex. The integration of renewable energy into existing grids, for example, requires advanced technologies and substantial financial resources.

Geopolitical instability has intensified risks to global energy markets, disrupting supply chains and highlighting the importance of diversifying energy sources and fostering international collaboration. Public and private sector partnerships are crucial to mitigating these challenges effectively. In Brazil, the historic drought of 2024 underscored the vulnerability of the country’s energy supply, prompting emergency measures to activate costly and polluting thermal power plants due to reduced water flow in reservoirs exacerbated by La Niña and prolonged dry spells. Hydroelectric power, once Brazil’s primary energy source, now accounts for just over half of the country’s energy consumption.

Renewable energy sources, such as wind and solar power, currently contribute over 30% of Brazil’s energy generation and are expected to reach 40% by 2028. However, their growth depends on the support of new thermal plants to ensure a stable supply, particularly during periods when solar energy is unavailable. Monitoring rainfall patterns and climate phenomena like El Niño and La Niña remains critical for forecasting hydroelectric generation, stabilizing energy prices, and maintaining the Central-South hydrographic basins’ key role in electricity production. Nuclear energy currently plays a relatively small role in the national energy matrix. The country has two operational nuclear power plants, Angra 1 and Angra 2, located in the state of Rio de Janeiro, with a third, Angra 3, which construction is halted. The project is approximately 67% complete, however, due to ongoing delays and administrative hurdles, the estimated operational date of Angra 3 has been delayed to the end of 2030 or the first half of 2031.

The consequences of energy disruptions extended beyond the immediate loss of power. The crisis places immense pressure on sectors that rely heavily on energy. This led to additional challenges: interruption of services, theft of fuel supplies, increased safety risks in power plants, and growing tensions around access to limited resources. Managing energy risks in such scenarios requires a deep understanding of the local energy infrastructure and its vulnerability to disruptions. When energy crises arise, well-developed plans, trained response teams, support systems for affected employees, and clear contingency protocols can significantly mitigate the impact on business operations.

New Security Threats and Terrorism

New security threats and terrorism have become a significant concern in the global risk landscape, as highlighted in AXA’s Future Risks Report 2024. It rose strongly to the risk rankings in this year’s survey. Among experts, this risk ranked 8th – up from 16th last year. When asked whether they consider this risk to be emerging slowly or rapidly or already there, a third of experts said, “already there”. As security risks become more interconnected and complex, new forms of terrorism, such as mass shootings, cyberattacks, and the malicious use of technologies like drones and 3D printing, have emerged. Security risks are amplified by a range of factors – from geopolitical shifts and conflicts to climate change and social unrest. As these risks evolve, their potential impact is amplified, affecting not only national security but also business continuity.

The attack on Three Powers Square in Brasília on 13 November 2023 highlights the emergence of new forms of violence. Investigated as terrorism and an assault on the Democratic Rule of Law, the incident involved homemade explosives and lethal devices, demonstrating the growing sophistication of such threats. The perpetrator, Francisco Wanderley Luiz, who was the only victim of the explosions, had planned to target judiciary figures. Investigations suggest the attack was planned in the medium or long term and may be connected to prior incidents, such as the January 2023 invasion of key institutions by opponents of the Lula government.

Experts note a shift in the nature of security threats, moving beyond traditional terrorism associated with religious or ideological motives to include actions aimed at destabilizing democratic institutions and inciting social panic. However, Brazil’s anti-terrorism legislation, which primarily addresses violence related to xenophobia or discrimination, has proven inadequate in addressing such acts. Recent cases in 2023 and 2024 illustrate the difficulty of classifying these violent actions as terrorism under existing laws, leaving gaps in the country’s ability to respond effectively. In today’s multipolar world, the rise in inter-state tensions intersects with growing security threats, creating new challenges for businesses and governments alike. Companies must be vigilant in understanding the complex landscape of security threats, which are now more diffuse and harder to predict. By diversifying operations and implementing robust security measures, businesses can better protect themselves from the cascading effects of these risks.

Pandemics and Infectious Diseases

Pandemics and infectious diseases remain a notable concern in the context of global risk management, as highlighted in the AXA Future Risks Report 2024. While these risks have seen a decline in prominence, ranking 9th in the list of emerging threats according to experts, their impact continues to be a significant point of consideration. The interconnected nature of modern global risks complicates the management of pandemics. Climate change, for instance, contributes to the geographic expansion of vector-borne diseases, while increased global mobility accelerates the spread of pathogens. Despite advancements in medical technology and disease surveillance, there is a growing consensus on the importance of proactive measures, such as promoting hygiene, vaccination, and robust healthcare infrastructure. Furthermore, strengthening international collaboration is vital to ensure a coordinated response to potential outbreaks.

In 2024, Brazil faced significant challenges in controlling infectious diseases and managing pandemic threats. Nearly four years after the onset of the Covid-19 pandemic, which claimed over 700,000 lives in the country, new and intensified health crises emerged. Among them, the dengue outbreak stood out, with an alarming 302% increase in cases compared to 2023, reaching over 6.6 million probable cases by 21 December. The incidence rate soared to 3,268 cases per 100,000 inhabitants, far exceeding the World Health Organization’s (WHO) epidemic threshold of 300 cases per 100,000.

Other arboviral diseases, such as chikungunya and Oropouche fever^[2], also showed concerning spikes. Chikungunya cases rose by 69% from the previous year, climbing from 158,000 cases in 2023 to 266,000 in 2024. Even more striking was the surge in Oropouche cases, which increased by an astounding 1,307%, jumping from 831 cases in 2023 to 11,695 in 2024. These figures underscore the growing burden of vector-borne diseases in Brazil, driven by complex socio-environmental factors. The significant increase in these infectious diseases in 2024 highlights the urgency of integrated measures to mitigate their impacts in 2025 and beyond. In addition, climate change, such as rising temperatures and irregular rainfall, may expand the areas suitable for the proliferation of vectors, worsening the situation. Infectious disease experts, epidemiologists, analysts and international health institutions have no doubts: it won’t be many years before the world experiences new pandemics. For this reason, institutions such as the WHO, governments and even companies need to work to develop initiatives to map possible new threats and initiate actions in an organized manner that preserves equity.

Financial Stability and Risks

Financial stability risks have emerged as a significant concern in the AXA Future Risks Report 2024, reflecting the intricate interplay of macroeconomic pressures, geopolitical instability, and evolving global challenges. High inflation and persistent interest rate hikes dominate the macroeconomic agenda, creating uncertainties that ripple through markets and economies. These pressures strain national budgets and complicate financial planning, particularly in regions heavily reliant on external debt.

The interconnected nature of modern risks amplifies their impact, with disruptions in one sector often cascading into others. Cyberattacks on financial institutions disrupt services and erode public confidence.

In 2024, Brazil faced significant financial challenges due to internal fiscal issues and external pressures. The depreciation of the real against the US dollar underscored concerns about President Lula’s fiscal policies, including a growing budget deficit and public debt of 78.6% of GDP. Austerity measures, such as R$11.6 billion in spending cuts, were introduced but weakened by amendments in the Chamber of Deputies, raising doubts about achieving the targeted savings of over R$70 billion. As 2025 approaches, maintaining fiscal discipline while addressing global challenges, like trade tensions and a strong US dollar, remains critical for restoring economic stability.

Addressing financial stability risks requires a comprehensive approach that combines regulatory oversight, technological innovation, and international collaboration. Policymakers must prioritize sustainable fiscal strategies and promote risk awareness, while private-sector stakeholders provide expertise and financial tools to navigate uncertainties. This multi-stakeholder engagement is essential for ensuring global economic resilience in an era marked by interdependent and dynamic risks.

[1] O Cerrado é um bioma brasileiro que ocupa grande parte do Centro-Oeste do Brasil, mas também se estende por áreas do Norte, Nordeste e Sudeste. É um dos biomas mais ricos em biodiversidade do mundo e considerado uma das savanas mais biodiversas, possuindo uma vegetação típica que inclui arbustos, gramíneas e árvores esparsas, adaptadas ao clima quente e seco, com períodos de seca intensa e chuvas concentradas principalmente no verão.

[2] Oropouche Virus is an arbovirus (a virus transmitted by arthropods) that is primarily transmitted by mosquitoes, specifically Culex mosquitoes. The virus is named after the Oropouche River in Venezuela, where the disease was first identified in the 1950s.