A New Landscape of Interconnected Risks
Fresh rifts across the geopolitical landscape are forming as national interests eclipse common interests. These rifts are developing as businesses face other significant challenges, including ongoing disruptions to their global supply chains that are causing a trend towards reshoring to cut tariff costs, reduce lead times and manage policy shifts. At the same time, businesses are investing in new technologies and automation to simplify decision-making and improve efficiencies. But the financial, supply chain, technological and regulatory issues associated with reshoring and automation can introduce overlapping risks.
Traditional risk management models can overlook second- and third-order impacts. For example, Russia’s invasion of the Ukraine in 2022 disrupted energy markets, food exports and investment flows far beyond Eastern Europe. Negative effects were pronounced in cities exposed to the real estate and construction industries, which experienced a large decline due to labor shortages, supply chain disruptions and rising consumer price inflation. By contrast, regions based in rural areas were cushioned by improvements in the agricultural and mining industries.
Advanced risk correlation modeling that includes dependencies and linkages among risk events provides an expansive view to pre-empt disruption and identify the competitive white space. By combining extensive geopolitical, supply chain, trade, climate and sector data and expertise to address emerging challenges, S&P Global Market Intelligence is helping companies account for the cascading impacts that can spread far and wide.
The corporate strategy team at this global manufacturer is responsible for identifying potential risks the company may face and devising appropriate long-term plans. Members of the team realized that they needed to have an in-depth knowledge of global economic and political conditions and market dynamics to effectively assess threats in today’s environment. They decided to tap into S&P Global Market Intelligence’s Global Scenario Service that is designed to identify realistic and high-impact future outlooks. The team was able to stress test their company’s performance under alternate scenarios and understand the effect of changes in commodity prices, exchange rates, monetary and financial policy, energy prices, demographics, tariffs and more on the bottom line.
