The impact of geopolitics on the Treasury agenda

18 January 2018

In our 2017 Global Investor Survey, a companion to PwC’s 20th CEO survey, over 550 investors listed geopolitical uncertainty as the top threat to company growth prospects (the full report can be read here). With investors taking note, corporates are looking to mitigate.

The development of a highly interconnected world has driven efficiency of information in markets resulting in the repercussions of geopolitical events and associated risks being felt ever more quickly. We see the role of the Treasurer as central to managing the impacts of these risks in the corporate environment.

The impact

Certain events can be short-lived in nature requiring a quicker reaction whereas others may be longer term shifts necessitating strategic choices be made.

Volatility or shifts in currency markets are prime examples of effects of geopolitical events impacting not only reported profits in the short term but also commercial import/export structures over time. Longer term, the gradual building of political consensus on climate change has changed investor appetites for extractive industries.

The reaction

As a result of this uncertainty, we have seen increased engagement with companies that are reviewing their management strategies both to mitigate and take advantage. Better alignment of FX strategy to business risk following the recent fall in Sterling is common in the UK, while we have also seen commodity producers investing in trading capability to take advantage and boost future profits.

Regulators are also asking for more, whether it be forcing corporates to provide additional analysis and reporting on credit risk or the requirement in the new financial instruments standard, IFRS 9, to consider the probability of future events into impairments recognised.

Looking to the future

The role of the Treasurer is key. By identifying geopolitical risks and monitoring stress indicators the Treasurer can increase corporate resilience in terms of, for instance, liquidity and the debt/equity structure whilst also contributing strategically through group-wide forecasting. This role is being aided by improving performance in analytics and modelling to better inform such decision making.

Although geopolitical uncertainty is significant, there are opportunities to be taken advantage of and risks to be managed. As the world changes corporates will adapt making it a very interesting time to be in Treasury.

Peter Walsh

Peter Walsh | Senior Associate
+44 (0) 20 7213 4955

 

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