Geopolitical Risks

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In the past, corporations have had varying approaches to try to manage geopolitical risks.  Some use advisors who provide insightful and in-depth country or topic analyses, others use management consulting services, and some seek insurance or risk transfer products. More recently, some use corporate diplomacy and sustainability best practices.  A few use a combination of all of these. 

Managing geopolitical risks can be challenging due to:

• constant change in their nature
• data overload from either internally or externally-sourced information, which can make the risks difficult to identify, analyze, interpret, monitor and value
• their analysis can be prone to individual biases
• responses can be muddled or inadequate and
• action to manage them is often taken only after an event

In some ways, managing these risks is similar to an advanced chess game.  You often need to think several moves ahead, as well as laterally to be on the look-out for newly developing and impactful trends.

The risks used to be primarily caused by direct government actions such as:

• confiscation, expropriation and nationalization
• currency inconvertibility
• trade embargoes
• sovereign payment or contract default
• war, civil war, insurrection, or other political violence

These risks can, and do, still happen.  However, geopolitical risks have become much more complex, frequent and impactful.  We believe there is a change in underlying trends.