WTW: Companies are Expanding Political Risk Management
![Companies are continuing to experience supply chain disruptions relating to geopolitics](jpg/mika-baumeister-3xjmwxuhx0q-unsplash-3.jpg)
Following a year in which almost a fifth of companies reported having to restate earnings due to geopolitical events, there’s been little respite so far in 2024.
More than two-thirds (69%) continue to highlight supply chain disruptions relating to geopolitics, according to the latest research from WTW.
However, encouragingly, the seventh annual political risk survey produced by the global advisory, broking and solutions firm discovered that the general sentiment of alarm measured last year has been channelled into preparedness.
Some 96% of respondents said they had invested in new political risk management capabilities, including enhancement of corporate processes and the creation of cross-functional teams.
“After a couple of challenging years, companies seem to have accepted that significant political risk losses are the new normal – and are working on building risk management capabilities,” explains Sam Wilkin, Director of Political Risk Analytics at WTW.
“As one oil industry executive puts it, ‘political risk is acknowledged, but it does not deter operations’, adding that it is ‘viewed as a factor to be managed within our broader risk management framework’.”
‘Grey zone’ identified as top 10 risk
In producing its latest report, WTW surveyed dozens of leading companies based around the world, 64% of which had revenues in excess of $1bn.
Researchers found that, partly as a result of disruptions in the Red Sea, state-sponsored supply chain disruption appears as one of the main business concerns for 2024.
Moreover, ‘grey zone aggression’, translating as any action used to weaken a country by any means short of war, has reached the top 10 risks for the year for the first time.
Further key findings include:
- Almost half of (47%) companies experienced a political risk loss in excess of $50m
- Escalations resulting from the conflict in Gaza have had less of a financial impact than the conflict in Ukraine, with 4% reporting a material negative financial impact for Gaza vs 20% for Ukraine.
- Trends toward geostrategic competition and populism are expected to “strengthen”
- With the US heading into election season, 64% reported concern about political risk in North America – the same proportion reporting concern about political risk in Asia
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Concerns over infrastructure attacks persist
Wilkin highlights that respondents were “particularly concerned about infrastructure attacks”, such as the sabotage of pipelines and cables, while assets in international waters are coming under threat because they can usually be targeted without inviting retaliation.
The wide dissemination of drone technology has made such remote attacks much easier, he notes.
One European energy executive shared that they were facing “hybrid or grey zone threats due to the Ukraine war – incidents of sabotage like the Nord Stream attacks or cyber attacks, that leave perpetrators with plausible deniability”.
The conflict in Ukraine maintains its position as the top risk of the year, followed by concerns over elections. With more citizens set to vote in 2024 than any other period over the next few decades across several countries, managing political uncertainty and potential impacts on business was identified as a significant challenge.
Respondents also shared concerns about trade wars, rising protectionism and populism.
The top 10 identified risks for 2024 were as follows:
- Ukraine complications and escalation
- Elections
- US-China rivalry
- Uncertain climate policy
- Mismanaging climate policy
- Middle East conflict escalation
- The next big conflict
- Home market growth slowdown
- Institutional decay
- Grey zone action
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