Managing geopolitical risk will take more than resilience

Geopolitical disruption has firmly moved from background risk to boardroom priority.

Once considered a regional or sector-specific concern, shifting alliances, trade restrictions and supply chain fragmentation are now reshaping global business strategy. From tariffs and sanctions to realignments in raw material sourcing, geopolitical uncertainty has become one of the defining factors affecting corporate performance.

Many chief executives are shellshocked at such an unpredictable and chaotic time. Slower GDP growth and tightening capital flows raise the stakes for businesses already navigating fragile demand, rising input costs, and policy volatility.

Given many companies’ overleveraged positions and the covenant challenges that could emerge from the risks of continued inflation and possible interest rate challenges, it is little wonder that many businesses are temporarily frozen and struggling to settle on their best course of action.

The pressure is particularly acute in sectors so heavily reliant on global supply chains. In this year’s survey, nearly two-thirds of respondents identified automotive as the industry most likely to face distress this year. Retail, manufacturing, and consumer goods are also expected to be heavily affected.

Some organizations are responding with creative operational and supply chain strategies. The just-in-time manufacturing model is giving way to something more robust and regionally adaptive. Leading manufacturers are investing in parallel production lines across trade blocs and rethinking upstream logistics to de-risk exposure to single points of failure. But that can’t be achieved overnight. The capital investments are extreme, and the timeframe to make those adjustments is not days or weeks, but months or years.

These aren’t short-term fixes. They signal a broader rethink of how companies approach risk and investment. The most prudent organizations will be exploring options including geopolitical hedging to mitigate losses and protect investments.

This necessary shift in focus brings other dangers, too. As geopolitical issues dominate executive agendas, other long-term disruptors, from climate change to AI adoption, risk being deprioritized. Leaders must maintain a wide-angle view of these trends that may ultimately prove more transformative.

While we have not seen the anticipated rash of bankruptcies yet—due in part to the rise in out-of-court liability management transactions—the pressure to fix problems in creditors’ portfolio is intensifying. A laser focus on the operational actions that can be taken now to drive a turnaround from within the business should not be delayed.

For all parties, proactivity over paralysis is essential. Business leaders must seek out the opportunities that can deliver meaningful change, as there simply isn’t the buffer room to wait this out. A story to engage capital partners that takes a holistic view of restructuring solutions and multiple scenario plans will be critical. While no one can confidently predict what is coming next, a range of potential solutions and outcomes should be rationalized on the basis that they can weather more extreme downside scenarios.

Agility, once again, must become a core operating principle. CEOs and boards need to move fast to strengthen their organizations’ ability to absorb external shocks, pivot at speed as economic conditions evolve, and make the right decisions now that will benefit their businesses for the long term, irrespective of the persistent uncertainty surrounding them.