Understanding the Geopolitical Landscape
Geopolitical Risk Mitigation
How can businesses and governments develop a deep understanding of connected risk in order to mitigate successfully?
Geopolitical risks are complicated to evaluate. They are interconnected and often highly volatile, prompting shifts between global power centers and impacting businesses. This is why businesses and governments need to understand the deep connections between risks and find innovative ways to mitigate them.
To show how easily risks can quickly cascade, creating a complex and volatile geopolitical situation, the Zurich Risk Room analyzed the network of factors that contributed to the Arab Spring of 2011. Their work formed the basis of a model that businesses can use to help understand their exposure economic disparity. The key is for businesses to understand that in a world connected by the internet and globalization, a company can be affected by geopolitical risks crystalizing halfway across the world.
Understanding how risks are connected
By broadening their view of geopolitical risk businesses and governments can begin to see that risks never exist in isolation. Understanding how risks feed into one another can begin to inform an effective risk mitigation strategy.
Businesses and governments must focus not only on the risks themselves, but on how risks are connected.
A single risk can quickly cascade, causing far reaching geopolitical impact
Staggering Implications
The ‘Our World Transformed: Geopolitical Shocks and Risks’ 2017 report demonstrates the staggering implications of interconnected risks, with 3 geopolitical risk scenarios. While speculative, these scenarios show how connected risks can coalesce with dramatic effect.
“Geopolitical turmoil is worrying: geopolitical tensions are the highest they have been since the end of the Cold War with increased interstate conflicts, state collapses, and dangerous non-state actors. Companies are faced with a wide range of political dangers: riots halting production; violence damaging assets; danger of capital controls preventing currency exchange and conversion; governments unexpectedly defaulting on loans or cancelling projects, revoking licenses or expropriating assets. Sectors with a specific exposure to these risks include oil/gas, mining, retail, defense, infrastructure developers, technology and many others with exposure to the emerging markets. Some organizations have reacted urgently to the environment by incorporating political risk into their overall risk assessment process, but a majority of firms still have not come to terms with political risk, or even with who within the organization should be responsible for it”.
David H. Anderson
Executive Vice President and Managing Director Credit & Political Risk, Zurich Insurance Group.
What can businesses and governments do?
Related Articles
Why businesses need to stay alert to geopolitical shifts
Businesses and governments have something in common
Our world transformed: geopolitical shocks and risks
Mitigating the unpredictability of geopolitical risks
Downloads
Our World Transformed: Geopolitical Shocks and Risks (pdf)
