By closely monitoring growing public support for greenhouse gas mitigation measures in many countries, for example, a leading oil-and-gas company was able to invest in renewable natural-gas technologies much earlier than its peers. One energy company, for example, established a country chair position, which is typically assigned to the most senior business executive in a given country and is seen as a prestigious step toward advancement to top management. However, it added, only a subset of chief risk officers (CROs) recognize this.. A counterparty who defaults on a contract, or whose business . Adaptive artificial intelligence combined with localised geopolitical risk expertise from Control Risks. 1. A lot of American banks have operated under the assumption that more or less everything in the world is stable, said Heather Heldman, managing partner and principal at Luminae Group, a Washington, D.C.-based geopolitical risk consulting firm. The Company: International Consulting Company is a global consulting firm based in Hong Kong. The Volatility and Risk Institute has embarked on a study of geopolitical risk and its relation to financial risks. Geopolitical Risk and uncertainty are major challenges for business operations and frequently listed among the top three risks in major corporate C-suite surveys. But so do some pharmaceutical, technology, and packaged goods companies. Successful geopolitical risk managers tend to hire a cadre of personnel with experience in doing business in the market and dealing with local agencies. & account inquiries, For CA: Do not sell my personal information. Improve your understanding and modeling of country and economic risk across countries and sectors. Leveraging Our Expertise to Navigate Geopolitical Risk. Boston Consulting Group is an Equal Opportunity Employer. Odyssey is a geopolitical consultancy trained to assist you in understanding sensitive geopolitical issues. Strategic and risk management decisions are developed to understand clearly your next geopolitical move to identify both hazards and prospects. Instead, they depend on personnel from government relations, strategy, and other business functions to identify and mitigate risks, with one function coordinating and consolidating input. Derek Leatherdale and Hanif Barma from the Risk Coalition identify in this article the key things that any board or risk committee should consider in the context of the complex and volatile geopolitical environment in which business now operates. We hosted our 6th annual Top 10 Geopolitical Risks event today with KPMG global alliance partner, Eurasia Group, and we highlighted the relevance of the risks Most of the companies we assessed do not use rigorous quantitative methods to analyze geopolitical risks. BCG was the pioneer in business strategy when it was founded in 1963. A quick message or email to the global functional marketing, finance, or risk community, the company told us, allows for rapid troubleshooting, the cross-pollination of insights, and the sharing of best practices. "speed": 600, [1] Geopolitical risk refers to situations involving power struggles such as wars, tensions or terrorist attacks that cannot be resolved peacefully. Such a unit could, for example, analyze political events that threaten to disrupt the companys operations materially or prepare responses to government inquiries into sensitive topics. Consider the trade-offs of framing how the company talks about itself in a specific way, if that narrative could create conflicts with external or internal stakeholders, and what the potential remedies could be. Please try again later! Nowhere is the fallout from current geopolitical tensions more apparent than the unfolding competition between China and the United States. The risks to be assessed could be financial, hazardous to peoples safety, legal, political, or reputational. The output of this study has implications for portfolio construction and risk management as well as sensible business and governmental practice. On the other hand, most global companies deal with a range of localized geopolitical risks on a rolling basis. A strong cross-functional interface is critical, especially for companies that take a holistic approach to risk assessment. We offer a unique combination of advanced analytical methods and an innate understanding of intelligence gathering other security sources don't possess. (See Exhibit 1.) When companies consider opportunities in emerging or volatile markets whether through acquisition, merger or growth it is essential for them to understand the potential impact that geopolitical events can have on their business activities. International Business, March 30, 2021 In the aftermath of the US presidential election, CFOs appeared very optimisticwith that quarter's survey registering the sharpest uptick in sentiment in its seven-year history. Another short-term action is to invest in strategy, PR, and government-relations teams that can serve as the companys points of contact with senior government officials and key stakeholders in multiple jurisdictions. Holistic-risk evaluators have the most highly developed geopolitical risk management operations. Convert risk into opportunity with bespoke solutions. Operations in countries with poor human rights records can cause supply chain disruptions but can also lead to reputational damage and give rise to class action lawsuits, public boycotts or stockholder divestment campaigns. Get the latest news and intelligence on global issues impacting business, politics, economics, military, security and energy. Subscribed to {PRACTICE_NAME} email alerts. Marcin Grajewski, The EU strategic autonomy debate: What think tanks are thinking, European Parliament Think Tank, March 30, 2021, europarl.europa.eu. Part of managing geopolitical risk is considering the ramifications of a companys core narrative. Ian Bremmer is the president and founder of Eurasia Group, the leading global political risk research and consulting firm started in 1998. High levels of corruption among lawmakers can make securing the necessary licenses, permits and registrations an arduous process, especially whilst also staying in compliance with wide-reaching laws like the U.S. FCPA. Nascent-risk managers use an almost entirely defensive strategy, with minimal organization and processes. According to our research, the consistent winners apply a highly developed approach to geopolitical risk management that emphasizes opportunity rather than just mitigation, involves the entire organization, and leverages sophisticated and robust analytical processes. Yet, companies find Geopolitical Risk difficult to fully understand and even more challenging to manage. Integrated solutions - consulting, risk management and broking - to help organizations prevent and protect against interlinked geopolitical risks. The report draws on the survey results from nearly 700 experts and decision-makers globally who were asked about their concerns . Eurasia Group's advisory and consulting business is built upon a research platform of leading political risk analysts and management consultants with deep country and sector expertise. Most companies do not have a dedicated team of full-time employees devoted to geopolitical risk management. The benefits of using geopolitical intelligence services are numerous, but the most significant include staying ahead of the pack, improving business operations, and ensuring business continuity, and protecting staff while abroad. 3 Case Study 2 They should regularly look up from tending to the immediate needs of their operating environments to learn, adapt, and prepare for external and internal shocks and pressures. Stakeholder and Influence Mapping "Heightened political risk globally raises the threshold for unrest, with implications for shipping, such as the ability to secure crews and access ports safely. Any copying or distribution of Eurasia Group materials is prohibited. . American Express. /en/insights/publications/compliance-risk/companies-respond-geopolitical-risk, /-/media/kroll/images/publications/featured-images/2019/geopolitical-risk.jpg?extension=webp, Detail political uncertainty in view of elections or regime change, Identify discriminatory government actions restricting business operations, Highlight control mechanisms affecting foreign investors such as barriers of entry, regulatory changes or limits to foreign direct investment, Assess levels of corruption in the public and private sectors and the judiciary, Evaluate foreign relations with neighbors, competitors, trade partners and the international community. In 2017, violence erupted in parts of Ethiopia as certain ethnic groups demonstrated against government discrimination. Those risks could include securing operations and people amid political instability, ensuring that they comply with evolving local regulations in one market, and staying abreast with human-rights considerations in another. Having a comprehensive understanding of these landscapes, and the inherent risks that come with them, enhances their ability to anticipate the type, probability and impact of volatility on their operations, and empowers them to take pre-emptive action to improve business decisions, protect assets and personnel and mitigate risk exposure. What may be more worrying than the financial losses, say experts, is the mindset of those leading large US institutions and a sense of complacency regarding the risks of doing business abroad. Stress in global financial markets is significant. Kroll OnTrack Inc. or their affiliated businesses. According to the report, no single locale is likely to dominate all regions or domains, and a broader range of actors will compete to advance their ideologies, goals, and interests.. Violence and Civil Unrest Henry EnglerThomson Reuters Regulatory Intelligence, The war in Ukraine has shed an unflattering light on the ability of large US financial firms to manage geopolitical risk, a type of risk that relies more on qualitative and subjective analysis than models and spreadsheets. Our privacy policy describes how your data will be processed. With tectonic shifts in geopolitics rumbling from Chinas reemergence on the global stage, a climate crisis, and the Fourth Industrial Revolution, companies must be on guard. In-depth analysis, they recognize, does not come solely from algorithms. Please try again later. Some may, for commercial and strategic reasons, choose to strengthen ties to the countries where the companies are based. 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