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Geopolitical risk – Investment and return

Investing in or trading with emerging markets can be unpredictable and while developing markets can offer attractive new revenue and margin opportunities they can also present a variety of geopolitical risks that are beyond an investor’s control.

Investors can be deprived of the use or benefit of their investments despite retaining title and access to their foreign investments, for instance due to laws preventing import of raw materials. Additionally geopolitical events such as poverty, human rights, labour disputes, and income disparities often fuel civil disturbances and conflict which result in negative financial consequences for foreign investors.

Diagram showing geopolitical risk hexagons with a focus on investment and return geopolitical factors
Geopolitical risk and investment risk factors

Managing investment risk

With US-China strategic competition, sustainability shock, the Middle East conflagration, emerging markets debt crisis, and potential knock-on effects to Europe following Brexit, exposure to geopolitical risk have become a reoccurring and material cost of doing business.

  • Political upheaval or other geopolitical events could lead to regulatory changes, how might those regulatory changes affect your business resilience?
  • Is a company’s business strategy exposed if a government changes its environmental policies?
  • When banks or governments change policy, is your business strategy exposed?
  • Which countries’ trade and financial relationships offer the best investment opportunities? Which countries or markets look most at risk? And what is the risk of contagion?

Capabilities in managing investment risk

  • VaPOR (Political Risk Analytics)
  • Analytics
  • Industry practice group specialists
  • Business continuity (Business Impact Analysis)
  • Political risk insurance
  • Business continuity plan and recovery strategies
  • Enterprise risk management
  • Alternative risk transfer
  • Corporate reputation insurance
  • Claims management and advocacy

How are leading companies managing geopolitical threats to investment?

Willis Towers Watson helps organisations understand these geopolitical risks and their interrelationships, to quantify and model their impact, and to design risk mitigation strategies that may or may not include traditional insurance measures. We do this by taking a multidisciplinary approach, working across traditional organisation silos, using evidence-based analytics, to quantify the risks and develop roadmaps for change. Our analytics provide actionable outputs in financial terms, supporting enhanced collaboration among your finance and risk management teams.

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