Kathmandu. A new joint report by the Swiss Reich Institute and the London School of Economics (LSE) has revealed that threats are becoming increasingly interconnected. It is creating new pathways. From which even limited economic shocks can spread quickly and far.
According to the report, there are 24 percent more relationships between the risks reported by 91 Fortune 100 companies than in 2019. Of these, AI and the supply chain are the primary relationship.
These results indicate a major shift in systemic risk. This is because threats are now interconnected across financial, digital, natural disasters, and socio-economic systems. The severity of another major systemic crisis will depend less on the magnitude of the initial shock. However, it will depend more on where it struck and how far its impact spreads.
Increasing reliance on shared suppliers, technology platforms and critical infrastructure means disruptions in one sector can spread to seemingly disconnected parts of the economy.
According to Jerome Hegeli, head of the Swiss Re Institute and group chief economist, interrelated risks provide little room for error. “Governments in many advanced economies have fewer options for response,” he said, adding that high debt and limited policy buffers mean that resilience cannot be built in the event of a crisis. This must be built earlier. This requires reducing critical dependencies, strengthening buffers and maintaining the ability to transfer risks. ’
According to Ivan Gonzalez, CEO of Swiss Rica Corporate Solutions, although the company may be diverse in different areas, its suppliers, technology providers and customers may rely on the same infrastructure. “Therefore, disruptions can affect more components than expected,” he said. Understanding these dependencies can help companies reduce risk accumulation, increase flexibility, and determine what they can afford and need to relocate. ’
The reporting of AI-related risks has now expanded beyond the tech sector. Between 2019 and 2026, the number of companies reporting risks related to AI and new technologies increased by nearly 30 percent. This includes industries such as retail, airlines, pharmaceuticals, and food. If companies and financial institutions rely too heavily on common technology and similar AI models, stress can lead to faster and more simultaneous responses.
According to John Danielson, director of the Center for Systemic Risk and Readers in Finance at LCE, people often prepare for the first crisis and try to predict the next. “Although a systemic crisis defines what happens after a shock, and AI can completely change that,” he said, “If organizations use the same models excessively and respond at machine speed, a limited-range shock can turn into a systemic crisis before we have time to react.” The challenge is not to predict the next crisis. But to be prepared for shocks we can’t anticipate. ’
Supply chains are also a key aspect of the interconnectedness of risks. Geopolitical tensions, tariffs, weather events, pandemics, and cyberattacks can all influence and expand each other through supply networks. This creates many pathways for disruptions to spread across companies and regions. Natural disasters can turn local disruptions into major risks.
Since 2019, company mentions about climate risk have increased by about 31 percent. More than a quarter of U.S. data centers are located in regions. Where there is at least three days of heavy hail a year, and more than 40 percent are in areas with a high risk of hurricanes.
In Taiwan, 88 percent of semiconductor plants are located in areas at high risk of earthquakes. When natural disasters affect the concentrated infrastructure that relies on a large part of the economy and cannot be easily replaced. Local shocks can spread throughout the economy. Concentration risk (the concentration of risk in one place) is not just geographical.
In 2024, the three providers controlled 70 percent of the global cloud infrastructure. While the three companies processed 97 percent of global credit card transactions.
Risk compensation for some financial assets is low by historical standards. However, governments have little room to use traditional policy tools to prevent future shocks. This increases the importance of building resilience before a crisis strikes.
Jean-Pierre Gigrand, director of the Centre for Systemic Risk at the LSE and associate professor of finance, said that while connections can make systems stronger when they actually spread risk, the same interdependencies can turn those same connections into shocks. “The challenge is to maintain the benefits of the connection without concentrating the risk in one place,” he said. – Agency
