New ideas for tackling geopolitical risks in business

Companies will increasingly need to address geopolitical security as interstate conflict, terrorist attacks and refugee flows, demand greater strategic attention from business leaders and have a bigger impact on the global economy, according to the Global Risks Report 2016 from the World Economic Forum (WEF).

The report, developed in collaboration with Zurich Insurance Group and other leading institutions, argues that states and governments are less able to tackle geopolitical issues alone as these challenges are increasingly interconnected. And the private sector has expertise and resources that can help, such as data for tracking risk factors, information that can be shared on criminal activity, and, crucially, the ability to control supply chains during emergencies.

There is a growing role for public-private collaboration to tackle global security challenges.

“There is a growing role for public-private collaboration to tackle global security challenges,” states the report. [link] “We need clear thinking about new levers that will enable a wide range of stakeholders to jointly address global risks, which cannot be dealt with in a centralized way.”

In the past many companies have been reluctant to become too closely involved in geopolitical issues. Half the managers surveyed in a 2011 study by Wharton Business School said their most common method of managing geopolitical risk was simply to avoid investing in volatile places. But that tactic is unlikely to hold up as companies seek new markets, with unrest and volatility able to spread quickly from one location to others.

Industry alliances

There is evidence, however, that this is changing. New global partnerships are emerging and action taken by the private sector against human trafficking is an example of the kind of influence companies can have. Initiatives from a number of different sectors including banking, technology and the trucking industry, are outlined in a 2014 WEF report Hedging Risk by Combating Human Trafficking.

That report also highlights the travel sector, which started “the Code”, a voluntary set of guidelines to help prevent child sex tourism and trafficking, in 2004. Spearheaded by Marilyn Carlson Nelson, the former chairwoman and chief executive officer of Carlson Companies, the Code was signed by Hilton Worldwide in 2011 and now has over 1,200 company signatories from countries including Colombia, China, Egypt, Thailand, Brazil and Russia.

International partnerships

In the past few decades, companies have also begun to play an increasing role in multi-stakeholder partnerships with UN organizations and non-governmental organizations.

These partnerships have ranged from financial pledges such as Unilever’s £27 million of support to the World Food Programme since 2007, to Coca-Cola’s 5by20 initiative with UN Women which aims to support five million women entrepreneurs across the company’s value chain by 2020.

Economist David McWilliams, a Professor at the School of Business at Trinity College, Dublin, points to the UN Global Compact – a voluntary initiative by the private sector officially launched in 2000 to support UN sustainability goals – as an illustration of how influential corporations can be when they work together with governments on global challenges.

Some 8,000 companies have signed up to the UN Global Compact’s ten-point code of behavior around the areas of human rights, labor, anti-corruption and the environment. They submit an audit each year to show how they are meeting these requirements and these are published online. A 2013 statement from the Coca-Cola Bottling Company of Ghana, for example, stated that it had bought a new more energy-efficient plastic bottling line and built a waste water treatment plant for its fruit juice supplier.

Climate action

At the Paris climate talks in December, the 443 corporate signatories of the UN Global Compact’s Caring for Climate initiative, set new targets for an estimated collective annual emissions saving of 93.6 million metric tons of carbon dioxide equivalent.

Never before have we seen this level of engagement from business and it is clear that the momentum is unstoppable.

In welcoming the Paris climate agreement, Lise Kingo, Executive Director, UN Global Compact, said the private sector should be applauded for bringing better business practices into the process and sending a forceful message on the importance of a solid climate agreement. “We believe the Paris Agreement sends the right market signals which will provide predictability, unlock capital, drive innovation and reward responsible business,” she said. “Never before have we seen this level of engagement from business and it is clear that the momentum is unstoppable.”

Addressing the water crisis

Beyond the UN, companies contribute in other ways on global issues. International food company Nestlé, which has made the responsible treatment of water “critical” to its business, proposed its own Sustainable Development Goal to the World Bank in 2013, aiming to cut its use of water to sustainable levels.

“While this measure may not be perfect when looking at the complexities of water withdrawals, usage and return flows,” says Peter Brabeck-Letmathe, Nestlé chairman, “I am nevertheless convinced it can work as a good, practical approach for measurement-driven action.”

Brabeck-Letmathe takes the issue of water so seriously he writes his own blog called Water Challenge. [https://www.water-challenge.com] In a post entitled “We will fail to feed the world until we fix the water crisis” he cites the experience of the Punjab, where water tables were dropping by one meter per year after pumps were subsidized for irrigation. There was no incentive to limit water use despite the inevitable consequences – drought and failing crops.

The need for partnerships

“Farmers saw the utter futility of changing their own habits without effective joint efforts of all major stakeholders in their watershed; and so they wouldn’t,” writes Brabeck-Letmathe. “Played out on an international scale, this is the crux: Without partnership between all those who share a stake in the problem we won’t make progress towards any meaningful solution.”

From water issues to refugee crises, partnerships are vital to finding solutions to the world’s increasingly interconnected global problems and, as suggested in the Global Risks Report 2016, many businesses appear ready to play a more important part.

Key takeaways

 

• The Global Risks Report 2016 believes there is a growing role for public-private collaboration to tackle global security challenges.
• Multinational corporations have traditionally avoided becoming too closely involved in geopolitical issues.
• Action taken by the private sector against human trafficking is an example of the kind of influence companies can have.
• The UN Global Compact is an example of how influential corporations can be when they work together with governments on global challenges.