Heightened global tensions and conflict are leading organisations of all shapes and sizes to rethink and reassess their collective exposure to geopolitical risk. In the last three decades, organisations have largely (though not exclusively) operated in a period of relative global stability. Globalisation presented opportunities for firms to reorientate supply chains to maximise value and access new and emerging markets against a backdrop of stable international political and economic relations.
That stability is increasingly under threat.
In recent years, and particularly in 2023, a succession of separate yet connected events caused organisations to pause and give greater thought to their geopolitical risk exposure. Regional hotspots across Europe, the Middle East, Asia and Africa – to name a few – exemplify the fracturing global operating environment. The outlook for 2024 is equally challenging. The year has already been characterised by disruption to shipping through the Red Sea (and western business, military and political responses), escalating tension and conflict in the Middle East, renewed Russian action in Ukraine, and military coups in Africa. In 2024, with elections covering over half of the world’s population, the scale of uncertainty and potential for change to domestic and international politics adds one more dynamic to consider.
As the operating environment gets more complex, so does the reputational and stakeholder landscape. Society’s expectations of corporates and governments are continually changing.
Stakeholders, external and internal, expect the organisations that they buy from, work for and generally interact with, to align with their own social and political values. At the same time, recent global events (such as the pandemic and energy price shocks) have prompted an expectation that governments are to do more to protect citizens and businesses from the worst impacts of those events. This expectation is likely to continue. Organisations are having to devote more time, effort and resources into managing and responding to global tensions.
The global operating context, not least the sheer intensity and volume of potential risks, is creating an unprecedented level of challenge for the Chief Risk Officer (CRO). What does this mean for the role and priorities of their functions in 2024? Our latest CRO Forum brought risk leaders together to explore not only the challenges, but vital and practical steps that should be taken to strengthen resilience.
Below, are a range of simple but effective measures, and pertinent questions, that senior leaders can take – and ask – within their organisation to understand their:
Before considering the measures and questions listed below, organisations must have a common understanding about what it is that they are seeking to make resilient to geopolitical risk. How each organisation chooses to prioritise what is important (be it by taking an operational, financial, reputational, people or environmental view of resilience) is for that organisation. However, it is an essential first step that will underpin activities.
We have outlined some key measures and questions to consider.
Geopolitical scenario planning takes a proactive approach to identifying, assessing and mitigating geopolitical risk. The process of using potential future scenarios – whether they materialise or not – will help to build resilience. Scenario planning is a simple technique to explore the specific impacts of a risk and can identify opportunities that change may present.
Questions
Having a pre-defined crisis response process, with trained team members, is a key differentiator for organisations that respond to high impact (and often reputationally challenging) events. The ability to react quickly, using an established and embedded process can help bring a degree of order to a chaotic situation and get the organisation’s response on the front foot and ultimately protect its reputation.
Questions
Stakeholders’ expectations of the organisations they interact with are constantly evolving. Organisations must be able to communicate openly, honestly and transparently in response to geopolitical events, while avoiding exposure to reputation risk through inconsistent or misinformed public (or internal) communication.
Questions
Geopolitical risk already features heavily on senior managers’ and boards’ agendas – but has to compete for attention with many other important and pressing risk (climate change and sustainability, technological innovation and AI among many others). Geopolitical risk’s differentiator is that it is likely to either contribute, exacerbate or accelerate those other risk types - and therefore warrants immediate attention - and as we have seen in 2023, can materialise at short notice.
Organisations that take a strategic approach to the early identification of potential risks are best placed to prepare their response. Developing a broad appreciation of the interconnected nature of the geopolitical landscape will ultimately help you thrive amid an uncertain and insecure geopolitical environment.
Helping clients navigate complexity.
Deloitte has a dedicated team of consultants in crisis and resilience, enterprise risk and communications and reputation management.
With multi-disciplinary capabilities, experience performing complex and high-profile work we help clients to:
For further guidance or support, please contact Enterprise Risk Management Partner Emma Price or Director Helen Hodge