Geopolitical storm clouds

Geopolitical instability is a key concern for investors, with global security and economic alliances shifting. Surveys indicate that 99% of CEOs consider geopolitics in their decision-making, while 40% report delaying investments due to these risks. Trade tensions, national security considerations, and economic fragmentation are reshaping investment landscapes, requiring investors to reassess their exposure to geopolitical disruptions. The report highlights that emerging economic and security blocs are contributing to increased policy uncertainty, making traditional diversification strategies more complex.

Translating geopolitical theory into practical investment decision making

Investment committees must integrate geopolitical analysis alongside macroeconomic factors. Short-term geopolitical events must be distinguished from long-term trends, requiring investors to assess changing power dynamics, policy shifts, and their potential financial impacts. The report suggests that geopolitical analysis should influence asset allocation, risk assessment, and due diligence processes. Investors need to assess whether diversification remains an effective risk mitigation tool, as geopolitical risks can now amplify rather than reduce exposure.

Navigating geostrategic spheres: Addressing the national security mandate

National security concerns are increasingly influencing investment decisions. Governments are scrutinising foreign investments in strategic industries, and investors must evaluate their exposure through a national security lens. Some funds are adjusting their portfolios, with foreign investors in China selling assets and repatriating funds. Investors must assess their alignment with national interests and consider how geopolitical risks impact their ability to protect capital and ensure liquidity. The report categorises investments into four groups: destinations (high alignment and return), diversions (high alignment, low return), diversifiers (low alignment, high return), and deadweight (low alignment, low return).

Confronting geopolitics through governance

Investment committees must establish governance frameworks to monitor and respond to geopolitical risks. The report presents ten key questions to help committees assess their portfolio, reputation, and organisational exposure. These include evaluating the impact of geopolitical events on expected returns, assessing reputational risks, and ensuring engagement with governments. Clear governance structures and scenario planning can help institutions navigate evolving risks and avoid reputational damage. Investors should also develop strong relationships with policymakers to facilitate dialogue on investment policy.

Strategies for portfolio and organisational stability

Geopolitical risks affect portfolios, reputations, and organisational structures. Investors must map their exposures, quantify risks, and develop risk management strategies. The report advises reviewing investment mandates, adapting asset allocations, and stress-testing portfolios against potential geopolitical disruptions. Reputational risks should also be considered, as investments linked to controversial regions or policies can lead to scrutiny. Organisations must ensure employee safety, maintain operational continuity, and establish crisis response plans.

Assessing companies’ geopolitical resilience

Portfolio companies must be evaluated for their ability to manage geopolitical risks. Investors should assess how firms adapt strategies to geopolitical changes, manage stakeholder relationships, and safeguard supply chains. Companies in critical industries such as semiconductors, artificial intelligence, and healthcare should have clear governance structures addressing national security concerns. Investors must also examine operational risks, including supply chain dependencies and regulatory vulnerabilities, to ensure resilience.

Conclusion

The report underscores the need for investors to integrate geopolitical analysis into decision-making processes. Portfolio, reputational, and organisational risks require structured governance and strategic foresight. Engaging with companies and policymakers is essential to managing risk and identifying opportunities. Investors must shift from reactive to proactive approaches to navigate geopolitical uncertainty effectively.