Geopolitical unrest drives risk

An illustration of a political rally.

According to Willis Towers Watson and Oxford Analytica, rising geopolitical tensions are driving a significant increase in political risk losses.

A new survey from the two companies has found that 55 per cent of global organisations with revenues greater than US$1 billion have experienced at least one political risk loss of $100 million or more since 2017. Additionally, the survey reports that crises in emerging markets are also driving up the implications of political risk, with Turkey and Argentina for example representing how badly markets can be affected by turmoil in up-and-coming economies.

Other key findings of the Political Risk Survey are that exchange transfer was the most frequently reported political risk, followed by political violence and import/export embargos; that US sanctions policy, emerging market crises, protectionism/trade wars and rising nationalism were seen as the key geopolitical threats; and that 70 per cent of companies have scaled back operations in a country because of political risk concerns.

“It is clear from our findings that political risk has increased significantly, now becoming a recurring and material cost of doing business,” said Paul Davidson, Chairman and CEO of Willis Towers Watson Financial Solutions. “If these levels remain elevated, companies will fall under increasing pressure from shareholders for greater levels of transparency around the losses actually incurred. Companies will need the ability to monitor, quantify and manage these risks as well as develop strategies to mitigate them.”

Simon Coote, Deputy Director of Oxford Analytica, added: “Companies typically grew up managing cyclical economic risks, not political. However, with the recognition of rising losses due to political risk, it can no longer be excluded from executive decision-making. To better mitigate political risk exposure, companies need to reframe how they operate. Taking steps to manage political risk must become a requirement of doing business, not simply regarded as an inevitable cost of operating in challenging environments.”