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Investors increasingly hold management accountable for losses due to political risk

A recent study by Willis Towers Watson and Oxford Analytica looks at how leading companies are responding to recent tumultuous political events. The report - How are leading companies managing today’s geopolitical risks? - found that many companies that took part in the research were unprepared for the political risk that has arisen in the US and Europe in recent years. Almost 90 per cent said that geopolitical risks had risen over the past five years (see Oxford Analytica's graph below), while roughly 60 per cent said they had suffered financial loss from political risk.

But political risk now goes beyond the company's internal need for mitigating exposures, as investors increasingly holding management accountable for losses experienced due to political risk exposure. The research found that growing investor pressure to account for political risk exposure is likely to mean that companies will increasingly be compelled to benchmark such capabilities against their peers.

Some of the research's other main findings on attitudes to political risk include:

  • US sanctions against Russia was the most frequently-mentioned geopolitical threat. This regional concern became a global priority due to the possible implications for the US-Russia relationship.
  • The US was named most frequently as the country or region where political risk is rising the most, ahead of the Middle East, Latin America, Venezuela, Sub-Saharan Africa and Russia.
  • The standoff between Saudi Arabia, other gulf states and Qatar, which one panellist from the energy sector termed an "Arab Cold War", was frequently named as a possible source of near-term political risk losses.
  • The inclusion of cyber-attacks - not a traditional type of political risk - as one of the key risks listed in the study highlights the increasing trend for cyber-attacks to have political origins.
  • Venezuela, Russia and Egypt were the countries mentioned most often where the survey's participants had experienced a financial loss due to political risk (see Oxford Analytica's graph below).

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