The group is warning that Geopolitical Risks are intensifying and a clear approach as to how best to identify and deal with these threats at a very early stage.
Top risk threats
The IRM special interest group has identified its top five risk threats for 2024.
- The first is geopolitical risks concerns particularly in the Middle East where any escalation may put further pressure on energy supply and pricing.
- Second is Asian geopolitical risks and macroeconomic shifts, with the case of Evergrande an example of the potential issues around ability for some to repay debt.
- Third is the political effects on global supply chains and the potential impact on energy companies of the continued drive towards electrification.
- Fourth is the ongoing changes in the European energy market with supply issues continuing to drive policy decisions.
- Fifth is backsliding in the drive for renewable energy and future sustainability.
It highlighted all have political risks involved.
In the next two decades, competition for global influence is likely to reach its highest level since the Cold War, according to the US National Intelligence Council’s Global Trends 2040 report.
This more competitive environment with rapidly evolving technologies will be more volatile with an increased risk of conflict, at least until states establish new rules, norms and boundaries for the most aggressive areas of competition.
The new power dynamics are likely to produce a more volatile and confrontational geopolitical environment, reshape multilateralism and widen the gap between transnational challenges and cooperative arrangements to address them.
Further is the fallout for the energy markets from the war in Ukraine.
The war had a direct effect on Europe with a reduction in the supply of gas. In an effort to maintain power supplies we have seen some countries looking to return to the use of coal powered plants which has put efforts to increase renewable energy generation under pressure.
Any geopolitical risk management must be tailored to align with the specific business context of the company. This will ensure that the identified risks are pertinent and the mitigation strategies are effective in safeguarding the company’s interests.
There is a real need for companies to ensure they have systems in place that will allow them to identify trends and risks. If they are able to identify trends and risks early, then it can be used to adapt and shape their future risk management strategy and has the potential for these trends and risks to be turned into opportunities.
Risk managers need to ensure they are taking a broader view when it comes to political risks and ask themselves how these risks could or would affect their operations.
For instance, the geopolitical situation in the Middle East has seen attacks in vessels in the Red Sea and the impact of transits via the Suez Canal, putting pressure on the global supply chain. We are also in the run up to the US presidential election and there is potential for geopolitical risks to arise should Donald Trump become president. He may decide to undertake a trade war with China, banning imports and exports and US businesses to trade or work with businesses which also trade with Chinese companies.
The impact of the UK’s withdrawal from the European Union, created new geopolitical risks for businesses in the UK and Europe but those risks were very different depending on geographically where your business is headquartered.
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