Headline: Systemic Risks

Modern societies are vulnerable to “systemic risks” such as pandemics, financial crises, or climate change. Due to their complex and interconnected nature, systemic risks pose a particular challenge to conventional approaches to risk analysis and management. The research group on systemic risks at the IASS analyses risks and opportunities around transformation processes for sustainable development and, in a second step, develops policy recommendations for the governance of systemic risks.

What are systemic risks?

Societal transformation processes such as the energy and mobility transitions or digitalisation are closely interlinked and their unfolding is accompanied by the emergence of inherent contradictions. Often, it is necessary to consider both benefit-risk comparisons as well as risk-risk trade-offs. Over the past decades, humankind has learned to deal better with such conventional risks as accidents or floods. However, this is not the case when it comes to interconnected, non-linear risks with global impacts, such as those emanating from the global financial system and climate change, or from the growing inequality between rich and poor. The outbreak of the Covid-19 pandemic at the turn of 2019/2020 is a recent example of the type of global risks that pose a threat to the critical infrastructures of societies.

In order to account for these new challenges, the Organisation for Economic Co-operation and Development (OECD) introduced the category of “systemic risk”. Systemic risks have the potential to precipitate the collapse of an entire system, rather than merely disrupting its individual parts or components. The collapse of a system critical to the functioning of society, such as the health system or energy supply, would impact on other parts of society, inflicting additional damage. Moreover, interactions between nature, technology and society can exacerbate the impacts of conventional natural hazards, such as tsunamis, when these affect densely populated coastal area and critical infrastructure such as nuclear power or electricity generation plants.

Researchers at the IASS view systemic risks as potential threats to entities critical to the functioning of society. Their impacts can extend far beyond the system of origin as their cascading effects ripple through societal systems and functions. Systemic risks are defined by several characteristics that set them apart from conventional risks.

Five key characteristics of systemic risks

Complex events such as systemic risks are distinguished by:

  • a high degree of complexity;
  • cross-border effects (cascade effects);
  • non-linear development and tipping points;
  • long periods of stability following by the rapid collapse of entire systems as tipping points are reached;
  • (often) decreased risk perception and a lack of adequate policy instruments to manage them.

Systemic risks present challenges for governance because they are highly interconnected and complex, unfold in a non-linear fashion and are not deterministic in their cause-effect relationships.

Since systemic risks are characterised by complexity and interdependence, cross-boundary effects, non-linearity, tipping points and delays in regulation and perception, efforts to manage them must focus on building resilience and sustainability in order to be effective. Possible solutions should also reflect the ethical concerns of distributive justice in order to be as equitable as possible to all those affected. Pursuing the goal of sustainable development in this context calls for effective and inclusive governance strategies.

The concept of transdisciplinary risk governance

The concept of transdisciplinary, inclusive risk governance provides a framework for the identification of challenges arising in connection with systemic risks. Transdisciplinary risk governance aims to bring together all relevant types of knowledge – both from within and beyond academia – to find solutions that will facilitate a transformation of society towards resilience and sustainability and to enhance the democratic legitimacy of decision-making processes.

Research on systemic risks at the IASS

The following projects at the IASS explore the challenges presented by systemic risks:

  • Systemic Risks: This research group project aims to identify common structural features of systemic risks such as climate change, financial crises, pandemics and digitalisation, with the goal of developing effective and sustainable governance approaches for risks that threaten the functioning of critical infrastructures and supply systems.
  • Plastic: Social perception and behaviour patterns: Despite the adoption of advanced waste disposal and recycling systems, plastic continues to enter the environment. At the IASS, researchers are studying how the problem of plastics in the environment is perceived and consumer interactions with plastics – from their purchase and use through to disposal. In a second step, they will develop transdisciplinary solutions. This project is part of the BMBF-funded research consortium “Development of New Plastics for a Clean Environment by Determining Relevant Entry Pathways” (ENSURE).
  • REconciling sCience, Innovation and Precaution through the Engagement of Stakeholders (RECIPES): The precautionary principle is supposed to prevent environmental and health risks from arising in the first place by encouraging early and forward-looking action to minimise risks. Critics of the precautionary principle argue, however, that it promotes excessive caution and hinders technological innovation. The RECIPES project aims to analyse how the precautionary principle is applied in the European Union and improve its future application through transdisciplinary and participatory methods.