More broadly, a variety of climate policies are likely to prompt a continued reassessment of business models to identify areas to reduce carbon footprints or unleash new revenue streams. Governments are likely to provide sustainability tax incentives, for instance, providing an opportunity for companies to utilize these incentives to help finance green R&D or their own energy transition.
And as newer and more rigorous sustainability reporting mandates are implemented, opportunities could emerge from analyzing these metrics to identify strategy shifts to adapt to a more sustainable economy.
The increasing role of governments in economies will affect supply chain strategies
The war in Ukraine is reinforcing a lesson that many governments took from the pandemic: supply chain resiliency and self-sufficiency in strategic sectors are of critical importance to national security.
Just as the pandemic elevated pharmaceuticals and medical supplies to a strategic sector, the war in Ukraine is elevating agriculture and food. Some governments have already restricted agricultural exports to protect domestic supply. Countries reliant on imported food face the prospect of rising prices, food shortages and social unrest.
The digital technology sector will also continue to be at the forefront of government intervention and geopolitical competition. Export controls on advanced technologies are a key part of the US’s, EU’s and others’ sanctions on Russia. These sanctions will divide the world into two digital technology blocs.
Relatedly, state-sponsored cyber-attacks for espionage, IP theft and disinformation are expected to increase. And as hackers continue to attack commonly used software as a means of gaining access to other organizations, companies across sectors will face heightened cyber risks from within their supply chains.
The push by governments to achieve self-sufficiency in strategic sectors will complicate traditional cross-border supply chains. Technology companies, manufacturers, automakers, life sciences companies, agribusiness and renewable energy companies will be among the most affected by these policy dynamics.
Continued disruptions to operations and logistics – driven by the war, the pandemic, social unrest, cyber attacks and extreme weather events – will further complicate global supply chains. Executives should re-examine their companies’ supply chains for nearshoring, onshoring or friendshoring strategies to improve resilience.
How to manage geopolitical risks
The war in Ukraine is creating challenges for companies around the world. While specific political risk mitigation and geostrategic actions will vary by company, CEOs should have three broad priorities as they seek to adjust to the new geopolitical environment:
1. Assess current and future political risks
Use a structured approach for identifying, monitoring and assessing political risks arising from long-term changes to the world order accelerated by the war in Ukraine, and incorporate these assessments into enterprise risk management (ERM) frameworks.
2. Establish a cross-functional geostrategic team
Include representatives from across the political, operational and financial aspects of political risk management, as well as from both the C-suite and relevant functions or business units, and regularly update the board on these issues.
3. Refine company strategy to match new geopolitical realities
Conduct a global footprint assessment for political risks and adjust accordingly, and proactively include political risk analysis in strategic planning processes, especially supply chain and market entry strategies.