Against the backdrop of ongoing global instability, companies intensify their focus on risk management, adapting strategies to navigate evolving threats, reports insurance and reinsurance broker WTW.
Following a year in which nearly a fifth of companies had to restate earnings due to geopolitical events, 2024 proved challenging as well, with 69 percent of companies reporting supply chain disruptions caused by geopolitical issues, according to “How are leading companies managing today’s political risks?” a new report by WTW.
The 7th annual political risk survey by WTW revealed that companies have shifted from a state of alarm to one of preparedness. About 96% of respondents reported investing in new political risk management strategies this year, such as improving corporate processes and forming cross-functional teams.
Due to disruptions in the Red Sea, state-sponsored supply chain disruption has become a major business concern for 2024. Additionally, ‘grey zone aggression’—actions that undermine a country without direct conflict—has entered the top 10 business risks for the first time.
Other findings include that 47 percent of companies experienced a political risk loss exceeding $50 million. The conflict in Gaza has had a smaller financial impact compared to the conflict in Ukraine, with only 4 percent of companies reporting significant financial losses due to Gaza, while 20 percent reported similar losses due to Ukraine. Trends toward geostrategic competition and populism are expected to strengthen. With the upcoming US elections, 64 percent of companies are concerned about political risk in North America, the same percentage that reported concerns about political risk in Asia.
An oil industry executive mentioned in the report that “political risk is acknowledged, but it does not deter operations”, noting that “it is viewed as a factor to be managed within our broader risk management framework.”
Sam Wilkin, Director of Political Risk Analytics at WTW, stated: “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.”
Wilkin noted that “panellists were particularly concerned about infrastructure attacks, like sabotage of pipelines and cables. In addition, assets in international waters are being targeted because they can be struck without inviting retaliation.” He also mentioned that the widespread availability of drone technology has significantly facilitated remote attacks.
A European energy executive added that they “are facing hybrid or grey zone threats due to the Ukraine war – incidents of sabotage like the Nord Stream attacks or cyberattacks, that leave perpetrators with plausible deniability.”
The conflict in Ukraine remains the top risk of the year, followed by concerns about elections. With a record number of citizens expected to vote in 2024 across several countries, managing political uncertainty and its potential business repercussions has been identified as a significant challenge. Panellists also expressed concerns about trade wars, rising protectionism, and populism.
The survey and interviews, conducted in March and April 2024 by Oxford Analytica, are based on responses from 50 companies worldwide, 64 percent of which have revenues exceeding $1 billion.
