Wars, political disorder, and conflict are all the tangible results of political risk, and these can result in events that influence the operations of an organization and its staff. Clearly, conflict and violence can directly affect staff, offices, factories, and even less visible parts of a business such as supply chains. Damage or disruption to any part of the business soon translates into operational risk issues.

However, political risks do not have to be this dramatic to affect a company. Organizations that actively engage with governments with poor human rights records or environmental practices can quickly see their work translate into reputational and operational risk issues.

For example, Telenor a telecoms company owned by the Norwegian Government, was operating in Myanmar (a country with a poor humans rights record) and faced a major backlash with activists claiming that its operations failed to mitigate human rights abuses in the country. When Telenor sold its Myanmar business, another lawsuit claimed the sale of its business would breach data privacy laws of its customers in the country and that it would benefit the military rulers.

Climate related risks have recently emerged in the geopolitical landscape. A fast-changing climate means more extreme weather, sea level rise and more droughts and floods. A hotter and more dangerous world is one that creates more operational risks. More extreme weather means more travel and operational interruptions (for example, many factories in China closed last summer due to the heat wave in the country).

Supply chains could face severe disruption and wider economic losses from climate change, translating into operational risk losses. In addition, operational risks could mount for organizations that fail to comply or integrate with the increasing amount of climate related regulation, such as the Task for Climate Related Financial Disclosures (TCFD).

How can we manage political instability globally and within UK politics?

An individual firm will struggle to control political instability, but it can monitor and understand political risk in order to manage it. Through this understanding, it is then possible to take action, such as restricting or ending activities in certain countries facing high levels of political risk. Many companies are naïve or underestimate the political risks that come with operating in particularly emerging economies. This lack of knowledge can be prove fatal for companies who fail to do their homework, invest in an instable country and lose their investments.

However, nuance and a deeper understanding of political risk is critical because political risk is often exaggerated, and companies can be easily frightened off geographies unnecessarily. This can result in opportunities for those who have a deeper understanding of situations and are prepared to take a calculated risk. These firms can often operate in areas others avoid and reap a significant commercial advantage.

What is the impact of the energy crisis on consumer behaviour, and how is this reflected within operational risk?

The energy crisis has heightened fears of energy shortages and power cuts. For some countries, this could mean prolonged power outages, which can impact their ability to operate. Lack of power restricts IT and office access and hampers productivity, can result in hardware failure and therefore operational risks. From an operational risk point of view, it is critical to ensure, contingency plans (such as generators and batteries) are in place. It is also useful to run exercises or simulations around power failure scenarios to ensure that staff are comfortable in managing any issues.

Sufficient controls must be in place to combat geopolitical risk – what do these controls look like and how can we ensure they are kept in place?

Organizations should have well drilled teams in place to manage time critical threats. Teams responding to crisis should ensure they have clear plans and communication. This can be practiced through exercises and drills, or even better real life incidents. Regularly updated business continuity documents are also a key control; this can help ensure teams are familiar and comfortable with responding to incidents. Another control is scanning, monitoring and understanding political related threats before they affect the organization.

What are the challenges of developing a meaningful scenario analysis in order to effectively protect an institution against geopolitical risks?

Credible scenarios are useful tools in allowing decisions makers to understand how risks can play out. The main challenge is ensuring that the leadership of the organisation understand scenarios. This can done through a traditional presentation.

The best way to protect an organisation from political risk is to use an exercise to simulate the scenario. This method will test the organisational response to the scenario and allow participants to understand its potential implications. It should also to help identify and address any gaps in terms of response.