Geopolitical Risks Having Bigger Impact on Earnings

Geopolitical risk is having a bigger impact on earnings than ever before—and senior management and boards are taking notice.

According to the 2017 Association for Financial Professionals Risk Survey, supported by Marsh & McLennan Companies, 49 percent of finance professionals believe their organizations are exposed to greater earnings uncertainty than they were three years ago.

In addition, 52 percent of Treasury & Finance functions are considering the impact on their organization’s growth expectations due to a geopolitical event. That’s no surprise given that 46 percent say their c-suite and board were concerned about geopolitical risk in 2016.

“Geopolitical risk in the form of a surprise election result, new regulations or heightened diplomatic conflict is a greater threat to organizations than ever before,” says Jim Kaitz, president and chief executive officer of AFP.

“As much as they plan for external competition, it is very difficult to plan for the unexpected geopolitical event or crisis which can severely impact an organization’s earnings.”

The top two drivers of earnings uncertainty are financial factors like credit, interest rate and FX, and business/operations, such as production interruptions or supply chain disruptions. Each was cited by 24 percent of survey respondents.

Forecasting risk continues to be a challenging issue for a majority of finance professionals. Fully 89 percent say that forecasting risk will be either as difficult or more difficult three years from now.

“Given the rise in geopolitical instability and other global risks, forward-thinking financial leaders and treasurers must focus on helping their organizations understand the potential impact of uncertain events on business strategies, operations, and supply chains,” noted Alex Wittenberg, Executive Director, Marsh & McLennan Companies’ Global Risk Center.

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