A survey of senior executives from 40 leading firms across multiple industry sectors, conducted by Oxford Analytica for re/insurance broker Willis Towers Watson, has reported a global rise in risk exposures as a result from geopolitical tensions.
55% of organisations with revenues greater than $1 billion reported at least one political risk loss exceeding $100 million in value.
The most frequently reported political risk-related loss was exchange transfer – which impacted nearly 60% of firms which had experienced losses – followed by political violence with 48% and import/export embargoes with 40%.
U.S sanctions policy, emerging market crises, protectionism/trade wars, and populism and nationalism were seen as key geopolitical threats.
“It is clear from our findings that political risk has increased significantly, now becoming a reoccurring and material cost of doing business,” said Paul Davidson, Chairman and Chief Executive Officer, Willis Towers Watson Financial Solutions.
While Russia and Vietnam were most frequently cited as countries where losses occurred, losses were recognised throughout Europe, Latin America, APAC, Africa and the Middle East.
“If these levels remain elevated, companies will fall under increasing pressure from shareholders for greater levels of transparency around the losses actually incurred,” explained Davidson.
“Companies will need the ability to monitor, quantify and manage these risks as well as develop strategies to mitigate them.”
Furthermore, 60% of respondents reported that political risk levels had increased since last year, and nearly 70% stated that they had scaled back operations in a country as a result of political risk concerns or losses.
Simon Coote, Deputy Director, 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.”
