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Addressing the ‘evolutionary pressure’ of geopolitical risk

Credit, Political Risk and Terrorism
Geopolitical Risk

By Andrew Hall | July 8, 2019

Many think geopolitics is limited to events in political hotspots and scattered terrorist incidents in Western nations, but it encompasses much more than just war and terrorism.

As observed by Charles Darwin, “it is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is most adaptable to change.”

Geopolitical risk is similar to evolutionary pressure as first observed by Charles Darwin. Organizations that understand and act on the signals and warnings inherent in geopolitical risk can adapt much like Darwin’s finches and turn an increasingly ambiguous and fast-moving world to their advantage. 

Geopolitics is a term that is commonly repeated but seldom understood. There are three reasons why the subject of geopolitics extends beyond the boundaries within which most people understand the term:

1. The definition is broader than you think. Most people think of geopolitics as limited to events in Syria or Iraq and scattered terrorist incidents in Western nations, but in reality, geopolitics is much more than just war and terrorism. The dictionary defines geopolitics as the impact of politics on foreign policy or international relations. In other words, geopolitics encompasses events like Brexit or trade or how nations respond to global climate change.

For example, supply chains could be disrupted by trade disputes, quickly enacted tariffs or a crop failure caused by a drought or a forest fire. Geopolitics is among the top global corporate risk creating the most significant threats and opportunities to business. It can even set the scene and condition for how and where we work.

2. Asymmetry opens the target pool. Although geopolitical risk is much greater than the threat of terrorism, war or revolution, such events threaten the security of people, buildings and other assets, requiring thinking about the asymmetric relationship between security threats and incidents. One of the common threads running through these asymmetric incidents is that security measures that cost millions to implement but can be defeated by simple patient reconnaissance and improvised explosives made from materials that can be bought from hardware stores, as illustrated by the Boston Marathon Bombing in 2013.

The incident, which occurred on a Monday, led to the deaths of three people, the injury to another 264 people, and a multi-day shutdown of 12 blocks in the city’s core downtown shopping and business district. It culminated in a manhunt that led to the complete shutdown of the whole city of Boston and neighboring cities for an entire Friday. And it only took two lone terrorists to bring a city of over 600,000 people to a standstill.

3. Cyber incidents and reputational risk are linked. The impact of technological developments and digitalization on the way we live and work is dramatic. A hacker, whether motivated by personal financial gain, employed by organized crime or working on behalf of a hostile state bent on subversion or commercial sabotage, can find ways to access businesses once considered safe and virtually impenetrable.

A data breach will be reported across the world in a matter of seconds and public perceptions of a brand or an organization can be severely damaged. Worse yet, a breach of an electrical grid could shut down whole regions of a country, leading to widespread loss of revenue across industries.

Protecting your organization

Consider these three enlargements of what geopolitics means and determine how each may impact your firm. A crop failure in Kenya can affect the supply chain all over the world. A terrorist trained in Somalia can strike a hotel chain’s marquee property in London, or a lone wolf terrorist could rent a truck and drive through an open market in Paris or Berlin. A cyber criminal in the Ukraine can publicly bring down a U.S. retailer, a transit system or even an electric grid. Everyone has a unique pattern of exposures.

How can we hope to address these exposures? Every organization needs a plan that makes the most of available experiences and expertise within its own staff and bring in outside help where there are deficits.

Additionally, organizations need to make sure that they build the situational awareness, foresight and sense of judgment into their operations. If anyone loses concentration on this force majeure, the C-suite could be facing surprise, shock and paralysis in a heartbeat. The lesson of geopolitical events is that they penetrate every level of a company, and have a level of interconnectedness that places a new emphasis on the relationship between boards, risk managers and the functional structures of your business.

Like Darwin’s finches, there isn’t one solution to geopolitical risk because every company’s exposure is different just as the environments where the finches live are different and led to variations in the birds. The objective is to better prepare for the prevailing threats of today and tomorrow, and how through organization, communication and education, to realize the opportunity to access the required resources and generate a more sustainable and resilient position. The more geopolitically proactive and intelligence led, the greater the odds of leading your sector and meeting the needs of shareholders and of helping your business grow in the future.

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