Corporate leaders and investors to become more focused on political risk

Please contact us for our macro-political outlook for 2017.

Geoeconomics: the new context for doing business in the world

The challenge for corporations will be determine how political and geopolitical risks are going to affect the way in which they operate across fragmenting jurisdictions, how they drive market access, the preferences and purchasing powers of consumers, what threats they pose to supply chains and business continuity, branding and reputation, or corporate governance.

Investors will need to systematically factor in geopolitical risks in their investment decisions, their preferences for asset classes, ideally resulting in geopolitical risk adjusted investment portfolios. They need to ensure that they give preference to those who have a strategy to deal with political uncertainty, and factor in the political risk exposure of those who don’t.

See here our short note on the subject.

Getting serious about political risk management

What has become increasingly clear is that a responsive, reactive approach to political risk management is only a second best way to deal with political risk. A much more promising approach is it to deal with political risk in a proactive, strategic, and comprehensive manner. It has therefore become essential for businesses to thoroughly examine how political risks could compromise market access, supply chains, production processes, financial bases, human resources or corporate governance. What has turned out to be increasingly useful is to maintain a corporate-wide perspective of political and wider economic and market risks in form of a political and economic risk register. A political and economic risk register enables them to develop a political risk hierarchy, more strategically allocate resources, build a system of controls, and increase overall resilience.

In order to learn more about how to establish and maintain a political and economic risk register, please contact us.

Dealing with political risk

For investors and corporates, the resurgence of geopolitics and political risk at large is part of the current and future economic reality and the “new normal”. Economic and financial outcomes have become indissolubly linked with political trends and events. One might bemoan this. The better choice is to come to terms and systematically deal with it. As the 21st century unfolds, a much higher awareness and deeper understanding of geopolitical risks and profound geoeconomic trends are essential to understand where the global economy is heading, how markets are developing and how investments are performing. Our new report provides a few basic pointers about how to get a better handle on political risks.

Global risks and resilience

Given the most recent history of risk events, global market participants are forced to systematically (re)assess the global risk landscape and develop an understanding of what it means to them. We suggest four steps that will them help do so: (1) clearly define the identity of the risk bearer; (2) establish a useful global risk universe and assess the likelihood of a risk event occurring; (3) connect the risk bearer with the global risk universe by identifying the channels through which global events and trends are transformed into a relevant risk; and (4) understand a risk event's possible traction, i.e. examine the stress a certain risk might cause. Get in touch for more information.

Santiago Compliance Index 2014: assessing governance arrangements and financial disclosure policies of global sovereign wealth funds

The SCI is based on fund-specific assessments of governance arrangements and financial disclosure policies across 24 Principles. It is built on the assumption that SWFs should not only pledge their commitment to higher governance and transparency standards by endorsing the Principles, but also publicly disclose relevant information that allows third parties to independently verify the quality of their commitments.

We conclude that the commitment of the SWF industry to the substance of the Santiago Principles is still uneven. A substantial number of SWFs have governance arrangements and financial disclosure policies that are in line with the standards set by Principles. At the same time, numerous funds still need to substantially advance their financial disclosure policies and become more transparent about governance arrangements.