The Gray Rhinos of 2025 (or) Global Risks by Any other Name

Welcome to a year in which uncertainty is a feature, not a bug.

Welcome to 2025! As the new year unfolds, observers of all types once again take stock of the “top risks” ahead.

In reality, these “top risks” lists are a misnomer. As typically framed, they focus only on the downside: what might go wrong. Most of the “top risk lists” we see are “top worries — that is, the things that keep us up at night.” More appropriately named lists fall along the lines of scenarios, forecasts, predictions, concerns, watch lists, or surveys.”

Risk includes both downside and upside. It’s time to stop talking about “risk” in opposition to “opportunities.” The whole reason people take risks is to pursue opportunities. Risk is about trade-offs and judgments about the likelihood of positive or negative outcomes.

Another misnomer when it comes to most of the issues on “top-risks” lists is “risk management” itself.

No decision maker has the power on their own to significantly “manage” the course of the global economy or geopolitics. That being said: although decision makers have varying levels of impact on the likelihood that the best or worst outcome will come to pass, their influence is not completely zero -especially when combined with the efforts of stakeholders with similar interests.

What decision makers CAN manage is how they create value by anticipating potential consequences of various likely outcomes and recognizing opportunities to solve problems and/or avoid costs.

I shared a few thoughts on this recently, specifically regarding supply chains and operations, via the DCRO Risk Governance Institute:

What we really need to be talking about is “risk response” management --particularly when it comes to some of the 30,000-foot, top-level, global macro scenarios like the ones clients ask me about.

Don’t get me wrong: the annual list-making exercise is not complete folly. It’s useful for policy makers and leaders of organizations of all stripes to regularly take stock of the things that keep them up at night: the obvious challenges that are no secret. Some observers may see higher probability than others of high-impact turns of events, and some may feel urgency at different levels of probability. But knowledge of precise probability and timing are not required for anyone to act.

I also find value in lists of events for which probability estimates range wildly, and which are a great exercise in stretching imaginations. These include the late, great Byron Wien’s “Top Surprises” retired in 2024 and replaced by Global Macro Outlook; Wikistrat’s “wild cards,” or Saxo Bank’s “Outrageous Predictions.”)

Gray Rhinos on my Mind

To kick off 2025, I’ll summarize some of the things that furrow my brows and those of many folks I respect.

These are the obvious, highly likely, and impactful gray rhinos at the center of my work. They are the challenges that are visible and that not only offer us the opportunity to respond but call upon decision makers to do so: to be among those who do not freeze and get trampled, who do not merely “get out of the way,” but who use the power of these gray rhinos to catalyze positive change, solve problems, and even if in the smallest way, potentially help to redirect their path.

The big gray rhinos on my radar for the global economy are climate, macroeconomic and financial fragilities, and geopolitical uncertainty –particularly regarding trade. The rise of generative AI plays into all of these to varying extents, though I’d prefer renaming it to something that does not include “intelligence” because the new tools we are seeing do not rise to that level.

Climate Collision

The Los Angeles wildfires have drawn new attention to the world’s failure to deal collectively with climate change. Extreme weather is creating a domino effect adding to food inflation, government budget pressures from dealing with increasingly frequent and intense weather-related natural disasters, real estate valuation, insurance capitalization and coverage, water shortages, health (whether from wildfire smoke, heat stroke, or other effects of extreme weather), supply chain disruptions, forced migration, and more. The costs of failing to act faster on climate continue to be far higher than investing in mitigation and adaptation.

Macro Challenges

Macroeconomic fragilities include huge private and public debt overhangs that existed before the pandemic and are now even worse; asset bubbles; and over-financialized economies where financial assets have sucked resources away from the real economy.

The new U.S administration’s policy prescriptions are a recipe for stagflation and uncertainty. President Donald Trump’s proposed tariff and deportation policies are highly inflationary. It continues to baffle me when I hear that he was elected in part because Americans are upset about inflation, because he basically has said, “Inflation? HOLD MY BEER!” The US news media already has run several stories of companies increasing their overseas purchases now to get ahead of expected price increases.

Suppose Congress passes Trump’s proposals to cut taxes even further for the rich while increasing taxes on the rest of US citizens. In that case, it will deepen the federal budget deficit, add to inflation, and slow economic growth. He is unlikely to constructively address the growing anger against big corporations, as evidenced by the recent murder of an insurance executive in New York City and the outpouring of anger at insurance companies —combined with climate-related claim denials and non-renewals— that has followed.

Uncertainty as a Feature not a Bug

An even bigger economic worry is that for the new administration, uncertainty is an intentional feature, not an accidental “bug.” This is good news for investors and traders who make their money when volatility is high. But it’s bad for real-world businesses who need a modicum of certainty to make long-term investments that create jobs and support economic growth.

The same is true for geopolitics: one of the biggest worries of CEOs and economists this year. Geopolitical uncertainty rooted in domestic political instability is a recipe for more conflict, which tends to fuel inflationary spending and money printing and tilt the “guns versus butter” economic trade-offs away from people’s daily well being.

Geopolitics

Geopolitical pressures threaten to make it harder to deal with climate and economic issues, particularly with the threat of trade wars which has increased since November’s US election. As China’s vice-premier, Ding Xuexiang, said in a speech at the Annual Meeting of the World Economic Forum in Davos this week (as reported by The South China Morning Post): “If countries continue to engage in chaotic competition over AI, the ‘grey rhino’ – a clear and looming risk – will soon be upon us.” He stressed the need for responsible global governance.

The Need for Cooperation

There are plenty of issues around which global cooperation is not only possible but essential – above all, mitigating and adapting to climate change. This includes ensuring that lower-income countries have the resources to leapfrog technologies that propel their growth and lower the carbon intensity of their economies. It also requires the countries which have had the biggest cumulative impacts on emissions to move faster toward net-zero economies and to support lower-emissions economies in their net-zero journeys.

I’ve got a lot more to say on all of these subjects in the coming weeks. For now, I will leave you with food for thought: How will these gray rhinos affect you and your organization or community? How are you responding? How are other key stakeholders responding? And how well are those responses working?