One year on from the invasion of Ukraine, geopolitical risk events are here to stay and business leaders must take action and undertake scenario planning to be ready – urges joint report.
With this Friday 24 February marking the one-year anniversary of the war in Ukraine, the Chartered Institute of Internal Auditors (Chartered IIA) has worked with Airmic to urge business leaders to prioritise action to prepare for further geopolitical disruption. With geopolitical tensions rising around the globe both organisations are concerned that businesses may not be prepared for the next big crisis.
To support their call to action the Chartered IIA and Airmic have joined forces to issue a new report ‘Navigating geopolitical risk’ published in partnership with AuditBoard. The report is aimed at encouraging boards, internal audit, and risk management to work closer together in tackling the risks associated with geopolitical events.
With internal audit having a direct line to the Audit Committee, and risk management having a direct line to the Risk Committee, both internal audit and risk professionals have vital roles to play to ensure greater resilience from geopolitical events.
The report makes several key recommendations for boards, internal audit, and risk management, including:
- Boards, internal audit, and risk management must recognise geopolitical risk as a strategic risk to the business: Geopolitical risk does not sit in a silo but exacerbates and intensifies a myriad of other business-critical risks such as supply chains, legal and compliance, reputation, financial liquidity, and cyber security.
- Scenario planning and horizon scanning are key to preparing for geopolitical risk: Organisations must resist the temptation to be events-led and retain agility for when crises strike. But agility is not a licence for them to improvise their response on the fly. They need to constantly challenge, stress test, and update all baseline assumptions about the likelihood and impact of the risks they could face.
- Boards, internal audit, and risk management must be agile in responding to ‘once-in-a-generation events’ occurring with regular frequency: The new era of geopolitical uncertainty calls for organisations to be agile in responding to crises and be in a permanent state of readiness.
- Boards, internal audit, and risk management must work more closer together as partners in geopolitical risk governance: key to this is sharing intelligence and rendering it relevant to the organisation.
- Internal audit and risk professionals must speak up and say the unthinkable on geopolitical risk and potential scenarios: they should do this even if this risks them being unpopular with the board. The bigger risk is of senior management or the board turning around and saying: ‘Why didn’t anyone see this coming?’.
Anne Kiem OBE, Chief Executive, Chartered Institute of Internal Auditors said: “With geopolitical risk still growing in severity, business leaders must learn lessons from the conflict in Ukraine, by making sure they are properly prepared for the next big crisis that could be coming down the track. Internal auditors, working in partnership with risk management, have a vital role to play in supporting organisations preparedness for major geopolitical incidents.”
Julia Graham, CEO, Airmic said: “Geopolitical risk is becoming far higher in profile on the risk radar of most businesses and is a board agenda item – one which demands a collaborative response from risk and internal audit professionals. Building resilience is imperative. Businesses need to be prepared to deal with significant disruption caused by political incidents.”
Richard Chambers, Senior Internal Audit Advisor of AuditBoard (and former President and CEO of the Global IIA) said: “The Chartered IIA and Airmic report on navigating geopolitical risk could not be timelier, given the one-year anniversary of the war in Ukraine. Boards should be looking to both their internal audit and risk management functions to get assurance that their scenario planning processes for geopolitical events are robust – in the new era of geopolitical uncertainty collaboration is key.”
The full report is available here.