CFOs who embrace a geostrategy will have more confidence to guide their companies to success.
Escalating conflicts, economic competition between states, widespread sanctions, inward investment restrictions and higher tariffs — geopolitics is having an outsized effect on the CFO agenda. This year, two of the political risks at the top of the C-suite agenda have been the global elections supercycle and policies to ‘de-risk’ global supply chains and investments, write Courtney Rickert McCaffrey, EY Global geostrategy insights leader and director of business and CXO insights at Ernst & Young; Oliver Jones, EY Global SaT markets, sustainability and geostrategy leader at Ernst & Young; and Witold J. Henisz, vice dean and faculty director of ESG Initiative at The Wharton School.
CFOs also have a broader role to play in geostrategy — which we define as the holistic and cross-functional integration of political risk into broader risk management, strategy and governance.
An effective geostrategy requires four distinct activities. First, companies should identify and dynamically monitor geopolitical, country, regulatory and societal risks. Second, companies should assess how the identified political risks could affect the company. Then, companies should manage the political risks that are considered material to their business, integrating them into connected-risk approaches. And, at the same time, executives should incorporate geopolitical considerations and other political risk analysis into strategic decisions. Finally, to weave all these activities together, companies need to have a cross-functional geostrategic team.
