More C-suite attention is needed on political risk
Despite the significant effects that C-suites expect political risk to have on their companies strategic decisions, only a minority of executives (14%) said that managing the potential impact of changing geopolitical and regulatory risks is a main strategic consideration today. Executives deprioritizing these issues is worrying in the current environment of heightened global political risk levels — but also presents a great opportunity for companies to use proactive geopolitical risk management to gain competitive advantage.
This lack of attention to political risk is part of a bigger area of strategic opportunity: improving companies identification of and response to emerging risks. About half of C-suite executives said they have performed the same as their competitors in terms of identifying, evaluating and responding to emerging risks in real time during the COVID-19 pandemic. Only about one-third believed their company has over-performed in this area. Despite this, less than half of executives plan to increase investment in this area. It appears risk management has been more about surviving than thriving.
Companies that implement a geostrategy will have a competitive edge
The 45% of companies that do plan to invest in identifying, evaluating and responding to emerging risks have a clear opportunity to outperform their competition in the years ahead. A crucial part of this should be investing to improve political risk management. This requires actively monitoring the political risk environment, assessing the impact of potential political risks across company functions and managing political risk as part of a broader enterprise risk management (ERM) process. Doing so will enable companies to better account for political risks when pursuing M&A and making other strategic decisions, giving them a crucial advantage vis-à-vis competitors.
In the latest EY Global Capital Confidence Barometer, global executives recognized that geopolitical risks are impacting their strategic investments. But only a minority of C-suites see political risk management as a strategic priority. This creates a competitive opportunity for companies that adopt a geostrategy.