How the conflict in Ukraine is shaping global risks
A new report from Lloyd’s and Aon examines the long-term impacts the war will have on businesses and how they can mitigate some of the risks.
The impacts of the Ukraine conflict can be felt around the globe, and a new report from Lloyd’s and Aon examines how they will affect businesses long-term and the steps needed to mitigate some of the risks. For ‘Ukraine: A conflict that changed the world’, researchers interviewed 75 risk and insurance professionals to understand the challenges and changes associated with the conflict and how companies are adjusting their risk management strategies as a result.
The report identifies four ‘macro themes’ that are shaping the risk landscape. These include:
Geopolitics — Countries and companies that have embraced globalization are now seeing its impact on their supply chains. Their response is to protect their interests by becoming more self-sufficient and taking greater control of access to their goods and services. An increase in the cost of goods and services is expected in the long term.
Inflation — As economies worldwide see the prices for energy and commodities rise, businesses are passing these increases onto consumers, which exacerbates price inflation for all. The report expects businesses to adjust their risk management budgets and reduce their discretionary spending to help offset pricing pressures due to inflation.
Economic impact — As a global energy exporter, excluding Russia from international trade will have ‘significant economic ramifications’ according to the report. In addition, since Ukraine is a major exporter of grain and other products, the disruption will affect global food supplies.
Social transformation — The conflict has created the fastest-growing refugee exodus to Europe since World War II, with approximately three million people fleeing Ukraine in the early weeks of the crisis. The number of refugees is expected to increase, which will create labor shortages and require companies and organizations to reconfigure their labor forces to meet an increasing demand for products and services.
In a press release, Lloyd’s Chief Executive Officer John Neal shared, “The conflict in Ukraine has caused devastating human costs and a whole range of interconnected risks across areas like energy, cyber and supply chains. Just take the recent challenges of exporting grain, where geopolitics has in turn affected food security, market volatility and price inflation. A proactive and forward-thinking approach will therefore be key to building resilience against the fallout – and Lloyd’s will deploy its expertise, resources, and risk solutions to support that goal.”
Addressing the challenges
The report also identified and assessed seven key challenges that will affect business assets.
- Cyber – encompasses the increased threats due to geopolitical issues
- Supply chains – disruptions and increasing costs, availability of raw materials
- Food security – import/export challenges and their role in pricing and food shortages
- Climate transition – the impact of energy security in net zero communities
- Energy security – the role of restrictions on supplies from Russia
- Environmental, Social and Governance (ESG) issues – how this affects businesses’ response and governance structures
- Public sentiment – reputational risks are rising for governments and companies because of public pressure to respond
The report also examines the likely response scenarios of businesses from an economic, social transformation, geopolitical and inflation perspective, identifying possible outcomes for events ranging from a successful Ukraine defensive push-back to a full-scale escalation leading to a NATO-Russia war.
“The Ukraine conflict touches us all, both as individuals and businesses,” explained Dominic Christian, global chairman of reinsurance solutions at Aon in a release. “Over time, our world has become increasingly interconnected, and geopolitical events further highlight that a specific risk does not exist in isolation. Our ability to manage deeply related and increasingly volatile risks requires careful thought, detailed planning and effective execution.”
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