“You may not be interested in geopolitics, but geopolitics is interested in you.”
In a December 2023 article, we looked at the concept of geopolitical risk in relation to corporate governance in the aftermath of Russia’s invasion of Ukraine and the revival of instability in the Middle East.
More than a year on, the international order is yet to return to something approaching post-Cold War stability and there are questions as to whether it ever will. While tensions have dampened for now between Israel and Hamas, the collapse of Assad’s regime revives the possibility of Syria’s return to civil war, which could spill over into the wider region. Attritional warfare continues in Ukraine, with North Korean troops recently joining the fray. Islamist groups and Russian mercenaries continue to operate in the African Sahel region. Finally, US-China strategic competition in various areas (access to rare minerals, microchip technology, and AI to name just a few) continues to cast a long shadow over international trade and supply chains.
It is therefore perhaps unsurprising that a survey by The Conference Board found that company CEOs ranked geopolitical risk as their main concern for 2025. Indeed, Geopolitical Strategist Tina Fordham warned in October 2024 that the international system may be slipping backward into a “geopolitical risk supercycle” after decades of relative peace that had seen widespread economic expansion and integration worldwide.
As a result, it seems that corporate boards will have to become ever-more conscious of the various intricacies of geopolitical risk if they are to navigate the increasingly volatile international environment, as global fragmentation supersedes globalisation as the order of the day.
Managing geopolitical risk, one year on
In our earlier article, we noted that increased global instability had been accompanied by a growing demand at the board level for geopolitical expertise. While there are no silver bullets to the difficulties posed, we nonetheless discussed various possible solutions that could help companies mitigate geopolitical risk from the board level down to the lower levels of the risk management process.
This link between the need for geopolitical expertise and the growing importance of geopolitical risk for many companies has only become stronger over the past year. However, there still remains little consensus with regard to how to approach such risks, given the very different geopolitical experiences and exposures of different companies.
This is perhaps unsurprising, as it continues to be the case that certain companies and industries have long operated in unstable regions and/or alongside volatile political actors, whereas others have only begun to feel the ramifications in recent years of leaving geopolitical risk largely unaddressed. In addition, the intangible nature of geopolitical risk, as well as the sudden immediacy of geopolitical flashpoints, makes long-term planning and mitigation difficult to conceptualise, let alone implement. As Executive Director of the Diligent Institute, Dottie Schindlinger, explained in an October 2024 Fortune article:
“Geopolitics is rising up the ranks in terms of areas of risk that directors are concerned about. […] That said, we also know from our research that directors aren’t quite sure exactly what to do about it.”
A recent article by Willis Towers Watson on Singapore boardrooms – a country which finds itself caught in the middle of US-China strategic competition – called for a general move from talk to action, starting with an incorporation of geopolitical risk into the mandates of relevant board committees:
“Boards must move beyond surface-level conversations and implement frameworks that facilitate proactive identification, mitigation and transfer of risks – including adequate insurance strategies. This could include setting up a dedicated task force or integrating geopolitical analysis into the regular risk assessment process.”
Nonetheless, the integration of geopolitical analysis into business operations will likely require bespoke solutions, given the diverse nature of companies. As a result, the formation of a consensus with regard to geopolitical risk market practice will likely prove difficult.
Despite this, there are some institutions, such as The Risk Coalition, that have attempted to bridge this gap and have endeavoured to provide principles-based guidance for geopolitical risk oversight.
Geopolitical risk as an opportunity?
In recent months a number of commentators have emphasised that there are opportunities as well as risks posed by changes to the geopolitical environment. For instance, an analysis by Bloomberg illustrated that countries that had refused to take a side between the ‘Western Bloc’ and ‘Russia and China’ (the so-called ‘New Neutrals’) had received a growing share of foreign companies’ investment by “staying above the fray”.
Opportunities were also highlighted in an article titled A proactive approach to navigating geopolitics is essential to thrive by McKinsey & Company, which noted that while “CEOs and boards understand that a shift in the global order is underway”, many of them have yet to grasp that “these geopolitical shifts present not only risks to mitigate but also opportunities to seize”. It is perhaps unsurprising that management and boards tend to focus primarily on the mitigation of such risks. However, the article contends that companies could benefit from a more proactive approach. For instance, by viewing such risk through a value-creation lens by asking questions, such as how the new geopolitical environment affects competitors or if it allows an optimisation of business operations? Indeed, throughout history, political and economic entities have long taken advantage of shifts in the geopolitical landscape to improve their position vis-à-vis competitors.
ISS voting research and geopolitical risk
As noted in our earlier article, geopolitical risk analysis falls to a company’s board and senior management, and therefore usually remains outside the remit of what shareholders may vote on and proxy advisers address directly.
However, that is not to say that ISS benchmark policy research does not consider geopolitical risk. The concept can prove a relevant factor for investors to consider in some shareholder proposals or contested situations, particularly those relating to operations in sensitive regions or countries. Geopolitical risk is also sometimes considered retrospectively when looking at other resolutions put forward at company meetings. Explanations in relation to geopolitical headwinds are often provided by companies in disclosures and considered as mitigating factors if sufficient justification is provided.
For instance, the significant challenges faced by mining company Ferrexpo, which continues to operate in central Ukraine despite the country being on a war footing, has been recognised in our reports since 2022. In addition, multiple companies listed in the UK and elsewhere have highlighted recent geopolitical developments as a relevant factor in their financial results or business operations.
Geopolitics in an increasingly fragmented world
Since our 2023 article on this topic, geopolitical risk, as a potential concern for companies of all sizes, has become increasingly relevant. At both the regional and global levels, geopolitical tensions between countries and/or international bodies continue to simmer. Some have spilled over into conflicts with far reaching ramifications for both international markets and supply chains, as well as for the populations affected.
While a growing number of companies recognise the need to integrate geopolitical analysis into their risk management structures, solutions generally remain bespoke and any external guidance rather vague (with some notable exceptions). Part of the reason for this is likely the differing structures of companies. Moreover, the abstract nature of geopolitical risk as a concept, and the sudden immediacy of geopolitical crises, also make mitigation difficult, conceptually as well as in practice.
Finally, recent articles on the possibility of conceiving geopolitical risk as an opportunity are a welcome addition to the debate. Seeing such risks as opportunities to be seized offers companies and investors a more proactive approach to addressing the shifting nature of geopolitics.
By: Tom Inchley, UK Research, ISS Governance
