Tuesday, 27 August 2024
GEÓ VOICE: CORPORATE GOVERNANCE – Integrating Geopolitics & Sustainability Needed to Mitigate Polycrisis
By: The Harvard Law School – Forum on Corporate Governance
Syndicated by GEÓ PRWire Channel Team – Gibraltar
GEÓPoliticalMatters.com/PRWire
First for Geopolitical Intel
A holistic approach that incorporates broader aspects of material risk is crucial for ensuring the resilience and sustainability of business operations
In today’s global polycrisis, boards and executive teams alike must integrate a wider array of perspectives into their decision-making processes and align their businesses. A holistic approach that incorporates broader aspects of material risk is crucial for ensuring the resilience and sustainability of business operations. Here are key recommendations:
Expand Risk Assessments to Include Geopolitical Risks
Risk assessments must evolve to include geopolitical risks even if they seem outside of the normal scope of what would be considered. Traditional assessments may gloss over certain facets of political instability or international trade tensions, focusing more traditionally on sectoral, internal or regulatory issues.
But this scope can be too narrow in an interconnected world that is increasingly fragmenting. Consider the impact of the Russia-Ukraine War on sustainability strategies across Europe or the Houthi attacks on container ships in the Red Sea.
The impacts of these events have caused significant supply chain disruptions which amplified protectionism as well as near- and friendshoring. This may de-risk supply chains but creates new volatilities like inflation due to price increases of goods and services.
By widening the board’s risk aperture, directors can gain a more comprehensive understanding of potential impacts on investments and operations. This broader evaluation perspective is essential for anticipating and mitigating risks that could disrupt business continuity and resilience.
Importantly, the risk assessment must not stop at the organisation’s edge but should include the full lifecycle of key products or services, including suppliers. Geopolitical instability can significantly affect value chains and could jeopardise the viability of key suppliers, many of which are small and mid-sized enterprises in emerging markets, which may have invested less in their resilience. It’s vital to ensure that business operations, whether in urban centers or rural areas, are resilient to major disruptions. For example, supply chains in politically unstable regions might face interruptions that could jeopardise the financial stability of the entire value chain.
Polycrises do not just affect emerging markets, but even developed countries in new and sometimes unexpected ways – a 2016 study in the American Journal of Public Health has shown that when temperature rises, violent crime increases, emphasising the link between a changing climate and human behaviour. Proactively addressing these risks through strategic planning and diversification can help secure value chains against risks such as geopolitical and conflict threats.
