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The global media headlines of recent years have been dominated by geopolitical issues. From conflicts in Ukraine and the Middle East to major elections, geopolitics have a direct impact on economies. They also expose international businesses to financial, strategic, legal and reputational risks. In the latest blog in our ‘How to Do Business in the Challenging Global Environment of 2024/25’ series, we look at some of the fastest-growing geopolitical risks which companies need to understand and manage.
Five growing geopolitical challenges for global firms
In recent years, geopolitics has become a frequent agenda item for the board of any international business. After years of relative stability, five main geopolitical risks have emerged which companies need to understand, monitor and manage:
1. AI and regulation
As AI technologies have started to disrupt business and society, governments are responding by introducing regulations which govern how organizations use AI and data. For example:
While most countries are moving towards greater regulation of AI, the Financial Times reports that Argentina is promoting itself as a low-regulation environment to persuade technology companies to move there. This divergence requires firms to monitor all relevant regulations and ensure their use of data and technology, and any third-party providers they rely on, remains compliant.
2. Military conflict
The conflicts in Ukraine and the Middle East are continuing at pace, and experts warn of escalations which could draw in other countries. There are also ongoing internal conflicts within Myanmar and Sudan. The interlinked global nature of business and supply chains means a large proportion of firms around the world are affected by military actions like these. For example:
3. Shifting global alliances
2024 is the year of “multipolarity” in which “a greater number of powerful actors will shape an increasingly complex global system” and “heightened bloc rivalry”, according to an EY report. Distinctive approaches are being taken by more western-facing groups like the US and the EU, with increasing competition from Middle Eastern and BRICs countries including Brazil, Russia, India, China and the UAE.
Further sharpening of these broad-based alliances is predicted next year, making it difficult for any company seeking to do business across different continents. 73% of investors told the Natixis survey they were concerned about “fragmentation” between the BRICs and western countries, which would cause economic instability.
4. Elections
National elections were scheduled in 2024 for countries representing 54% of the world’s population and 60% of its GDP. Further national elections are planned in Australia, Canada, Japan and Singapore next year. A change of government often brings a reversal in policy and a raft of new regulations. Global organizations need to be alert to what this might mean for their compliance approach in each market.
The US presidential elections in November 2024, and handover of power in January 2025, are next on many companies’ horizons. 72% of global institutional investors told the Natixis survey they worry about the impact of the US election campaign, in which the two main parties offer very different policy platforms.
5. ESG requirements and expectations
Developments around ESG and the environment continue to affect companies. The most direct impact comes from the changing climate. The Economist Intelligence Unit forecasts that “insurers, companies and governments will struggle to price in the increasing risks of climate change”.
In response, more countries are introducing ESG-related legislation and regulations with implications for companies. These often mandate firms to carry out environmental due diligence on third parties and suppliers. Most notably, the EU’s Corporate Sustainability Due Diligence Directive was adopted by the EU’s Council in May and will apply to all businesses operating in the EU. It is expected to lead to retaliatory regulation in North America and Asia.
There are also opportunities for companies with a positive ESG record. Companies who are demonstrably sustainable may benefit from government subsidies and gain new business and investment from consumers and investors who want to use their spending power to do good. Ultimately, all firms will need to understand their ESG impact and that of their third parties–and, crucially, be able to evidence that to regulators, investors and consumers.
Data and technology can help firms mitigate to geopolitical risks and find new opportunities
These geopolitical challenges present legal, financial, strategic and reputational risks for any company operating beyond its own jurisdiction. As a result, a risk-based due diligence process is essential to identify emerging risks from these trends and respond accordingly. Companies should screen all current and prospective third parties using a broad range of accurate and reliable data sources and technology to filter out only the most risk-relevant results.
While risk management is essential, companies should also reframe how they think about geopolitical risks. A major opportunity is available to organizations who can understand forthcoming challenges and how they will impact the sector, then act on this information quickly.
LexisNexis® helps companies to innovate with credible data to power big data & AI initiatives
Managing risks and harnessing opportunities starts with having the right data on historic, current and emerging geopolitical and financial trends. LexisNexis brings together a broad range of reputable data sources to help you surface relevant and impactful geopolitical and financial insights. Our datasets include media and company data; sanctions and watch lists; ESG and PEP data; legal records; and biographical information.
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