Partly as a result of disruptions in the Red Sea, state-sponsored supply chain disruption appears as one of the main business concerns for 2024 and ‘grey zone aggression’, meaning any action used to weaken a country by any means short of war, has reached the top 10 risks for the year for the first time
LONDON:
After a year in which nearly a fifth of companies reported having to restate earnings due to geopolitical events, , companies saw another difficult year in 2024, with 69 percent reporting supply chain disruptions relating to geopolitics, according to How are leading companies managing today’s political risks? a new report by WTW , a global advisory, broking, and solutions company.
The 7th annual political risk survey produced by WTW found that the general sentiment of alarm measured last year among companies has been channeled into preparedness. Some 96% of respondents said they have invested in new political risk management capabilities this year, including enhancement of corporate processes and creation of cross-functional teams.
Partly as a result of disruptions in the Red Sea, state-sponsored supply chain disruption appears as one of the main business concerns for 2024 and ‘grey zone aggression’, meaning any action used to weaken a country by any means short of war, has reached the top 10 risks for the year for the first time. Other findings include:
-47% experienced a political risk loss in excess of $50 million
-The escalations resulting from the conflict in Gaza have had less of a financial impact than the conflict in Ukraine: 4% reported a material negative financial impact for Gaza vs 20% for Ukraine.
-Trends toward geostrategic competition and populism are expected to “strengthen”
-With the US heading into elections, 64% reported concern about political risk in North America – the same proportion as reported concern about political risk in Asia
The top 10 risks , according to WTW, are- Ukraine complications and escalation, Year of elections, US-China rivalry, Uncertain climate policy, Mismanaging China risk, Middle East escalation, The next big conflict, Home-market growth slowdown, Institutional decay, Gray zone action
“After a couple of challenging years companies seem to have accepted that significant political risk losses are the new normal, and are working on building risk management capabilities,” said Sam Wilkin, director of political risk analytics at WTW.
As one oil industry executive cited in the report put it, “political risk is acknowledged, but it does not deter operations”, adding that “it is viewed as a factor to be managed within our broader risk management framework”.
Wilkin highlighted that “panelists were particularly concerned about infrastructure attacks, like sabotage of pipelines and cables. In addition, assets in international waters are being targeted because they can be struck without inviting retaliation.”
The wide dissemination of drone technology has made such remote attacks much easier, he noted.
One European energy executive shared that they “are facing hybrid or gray zone threats due to the Ukraine war – incidents of sabotage like the Nord Stream attacks or cyberattacks, that leave perpetrators with plausible deniability.”
The conflict in Ukraine maintains its position as the top risk of the year, followed by concerns about elections. With more citizens voting in 2024 than any time in the next few decades across several countries, managing political uncertainty and potential business repercussions was identified as a significant challenge. Panelists shared concerns about trade wars, rising protectionism and populism.
The survey and interviews, conducted in March and April 2024 by Oxford Analytica, are based on responses received from 50 companies around the world, of which 64% have revenues in excess of $1 billion.