During this webinar, the Board Leadership Center was joined by Sophie Heading, KPMG’s Global Geopolitics Lead, who helped us break down the biggest geopolitical risks on the horizon for businesses and boards into the three large, structural trends that will impact the global business landscape – Geopolitics, ESG and Technology.


In January 2021, Eurasia Group published the latest edition of their annual Top Risks Report. Most organizations think about risk in two dimensions: likelihood and impact/severity. In prioritizing their top risks, Eurasia Group uses a three-dimensional view, also incorporating imminence, or time-to-impact. To fully assess the risk landscape, we take a four-dimensional view, performing a Dynamic Risk Assessment to account for the interconnectedness of risks.

In doing so, our Top Risks 2021: Bottom Line for Business analysis shows three potential scenarios – or groupings of interconnected risks – where the potential domino effect could cause an impact more severe than any one risk on its own. The interaction of these three major trends are what we refer to as the “GET” agenda:

  • Geopolitics: the changing geopolitical and economic landscape, particularly as a result of US-China power dynamics;
  • ESG: the rise in prominence of Environmental, Social, and Governance issues; and
  • Technology: the shift in importance from human capital (labor) to physical capital in the form of emerging technologies.
Source: KPMG’s Top Risks 2021: Bottom Line for Business

There are three potential scenarios (risk clusters, or RCs) in the short-term, all of which would have an impact more severe than any individual risk:

RC1: #1 US leadership, #4 US-China tensions, #3 Climate competition.

RC2: #5 Global data fragmentation, #1 US leadership, #4US-China tensions.

RC3: #6 Cyber tipping point, #5 Global data fragmentation, #4 US-China tensions.

For more information about KPMG’s Dynamic Risk Assessment, read the key takeaways from last year’s Board Academy event with Dr Andries Terblanche.  

Geopolitics: Politics and the Economic Landscape

COVID-recovery will be one of biggest determinants of economic recovery.

Across Europe and globally, countries are hitting the third wave at different times, and there are disparities in vaccine supply and rollout. In terms of the latter, the EU is suffering from a late entry into supply contracts, coupled with longer approval times from the European Medical Agency. However, even if supply increases in April as expected, existing vaccine rollouts in certain countries have already struggled to keep up with supply. 

Still, the IMF and World Bank expect the EU to bounce back relatively quickly, though behind the US. As countries recover, governments will need to think about how they repay their debts given there is little appetite to cut spending. The first focus could be on taxing foreign sources, such as through carbon border adjustment mechanisms or digital services tax.

How sustainable is this government debt?

A lot of the government bond issuance was absorbed by Central Banks as part of quantitative easing programs, which blurred the lines between the role of fiscal policy and monetary policy. This may have crowded out private sector investors, lowering the liquidity of bonds over time, and leaves Central Banks with fewer tools to respond to future crises. Meanwhile, the debt itself remains serviceable as long as interest rates remain low.

The big question then is: what’s happening with inflation in the longer term?

Most experts expect some short-term inflation, but in the longer term there are arguments for both sides – and the risk of inflation and higher interest rates are not immaterial and should be considered in your financial planning.

The pandemic hasn’t created any existential crises yet, but there’s a fragility in the massive amounts of liquidity and debt that that’s been taken on. The worst case: a debt crunch in emerging markets and a potential global financial crisis; best case: political instability stemming from an increasingly disenchanted public. 


Politics and the Environment

Many of the largest companies are setting net zero targets, which gives us the perception that we’re all working on climate change together, but the risk (#3, Climate: net zero meets G-Zero) is that Climate will become the new Technology (see below) – i.e. that it becomes a new stage for global competition.

The rise in alternative models of governance that are increasingly economically connected, is leading to the potential for different approaches to climate, which in turn, could drive unique supply chain and investment risks:

  • Liberalized Capitalist “Democratic” model (US), where the market (or private sector) determines the economic priorities and retrospectively shapes political agenda.
  • State Capitalist model (China), where the state selects the national priorities and maintains tight control over the population. China is focusing its strategy investments in wind, solar, rare earth supply chains, nuclear, etc. not necessarily for altruistic reasons, but because it wants to secure its place as a key player in the next world of energy and next generation of supply chains.
  • Bureaucratic model (EU), where the regulatory landscape more proactively limits the sovereignty of governments and the private sector. The EU projects its power on the global stage by being the standard setter in unregulated areas of policy. With respect to climate, the EU is taking a strategic approach to legislation driven by politics.
    For example, rare earth metals and minerals are necessary components for renewable technologies. However, Europe is almost completely dependent on supply of critical metals from outside its borders. In the face of the geographic and geopolitical dominance of supply, the EU is looking into how to better incentivize and support urban mining and circular economy solutions.

The climate conversation over the past few years has moved from citizen and stakeholder activism, to investor scrutiny, to politics, and now finally to government policy. However, the risk with this approach is what happens when social compliance and regulatory compliance don’t align – for example, when pension funds are taken to court by its members for not sufficiently taking climate risks into account in their portfolio management?[i]

And what happens to harder-to-decarbonize sectors? In terms of creating a soft landing for the most exposed assets, the EU is further ahead in terms of creating policy signals – for example, creating a policy framework to support an integrated regional hydrogen market and related supply chain[ii][iii] and being at the forefront of transition financing, with its Just Transition Fund (JTF)[iv].

Politics and Social Forces: The social impact of the pandemic

Taking place at a time when a lot of the public feels the system isn’t meeting their needs, the pandemic has likely increased actual (and perceptions of) social inequality. The social movements linked to unequal recoveries within countries could manifest in:

  • Event level risks, such as the elections referenced in Risks #8, Middle Eastern Instability, #10, Challenges in Latin America and #9, Europe after Merkel, creating openings for populists in, for example, the elections in France next year.
  • Direct business or reputational risk, in the form of citizen activism or public sentiment, which can be fired up when governments are seen to be inactive or ineffective, e.g. Black Lives Matter. 

Technological displacement and productivity

Labor will no longer be the most important factor for production, which also means it also won’t be the most important factor of comparative advantage for countries. This has implications for workforces and safety nets. Social compliance will be a lot more important, perhaps shifting the focus from the “E” of ESG to the “S”.

As we explore in Geopolitical Face-Offs, there will be a laser focus on domestic workforces and the role of business to support the transition and reskilling of these workforces. This sentiment was echoed during our webinar on Talent Management in the Boardroom last October:

Remote working has widened the available talent pool, but it also poses a challenge. Employees are trying to embrace the new ways of working, while dealing with today’s situation and what the future might hold. Leaders need to keep their people feeling safe, while also keeping them connected, engaged, and productive. They need to maintain a focus on the employee experience and well-being, invest in new leadership skills to support the new ways of (remote) working and invest in their employees, e.g. with new (digital) learning content.

At the same time, the coronavirus pandemic has sped up the need for transformation in many organizations – in particular, digital transformation – as operating models come under pressure and need to be revisited. In turn, new skills will be needed. Upskilling and reskilling are critical for organizations and society to be productive – and ensure people’s employability and effectiveness. In fact, two out of three HR executives are prioritizing upskilling of the workforce to manage the impact of AI[v].


Much of the geopolitical competition over the past few years has been centered around Technology and its infrastructure, bringing more state intervention into the industry. The recent pandemic has also heightened state intervention in more traditional industries, such as healthcare and energy. This trend is likely to lead to stronger industrial policies supporting domestic players. For example, the EU recently announced in its Digital Compass Plan that it wants to double chip production output to reach 20% of the global market by 2030[vi].

At the same time, we may see other forms of protectionism, as economic and trade policies aim to limit the influence of foreign companies. This could threaten progress and innovation, and lead to a bifurcation of standards and architecture – a risk which is exacerbated by the lack of any international organization effectively owning global issues like cyber and data.

Three of Eurasia Group’s Top Risks for 2021 are at play here:

  • The geopolitical competition around Technology has spilled over into the broader trade relationships, largely driven by the US-China dynamic. While this risk only comes in at #4 in Eurasia Group’s report, it is the most prominent issue in the four-dimensional view because of its connections throughout the network – both in terms of its influence on and vulnerability to the rest of the system. And this is not likely to change under the Biden administration. Eurasia Group’s view is that the US will not be seen to lead the global order; the EU is hedging its bets by signing an investment deal with China; and China is shifting its focus from an outward-looking “Made in China 2025” policy to a five-year plan more focused on achieving self-reliance in science and technology.
  • We’re seeing a global data reckoning (#5). The authoritarian model, in terms of control over data, was previously an outlier (think: China). Compare this to today and it’s now the norm; the mirror trend is an increasing reluctance to store data abroad. Western democratic models – which are trying to balance the privacy of citizen’s data with advancement in emerging technologies dependent on data – could struggle to compete.
    Even organizations that aren’t moving data across borders will be impacted as they’re subject to increasingly stringent regulation, localization and isolation requirements, and higher penalties – not only in terms of regulatory compliance but also reputational risk. Organizations will also face issues around the taxonomy of data sets as personal and industrial data lines blur as we move into the Internet of Things. However, it can also be a source of competitive advantage, boosting the comparative attractiveness of markets to business: the EU has the potential to become one of largest data markets in the world in the face of localization of data pools elsewhere.
  • We’re at a cyber tipping point (#6). The SolarWinds cyberattack from early 2020 is just one example, and potentially went beyond cyber espionage to reconnaissance intended to support offensive cyber operations. While the EU and European companies may not have been the target of cyberattacks to the same level as the US and US tech companies, any organization operating in global markets is susceptible to the risk. Cyber warfare is becoming a main point of national security, and this will in turn impact businesses.

Key questions for C-levels and Boards to consider

Geopolitical risk impacts a number of areas and tends to not be owned by any one person or member of the C-suite. As such, the intersection of politics, climate and technology in context of business can have interesting implications for the way management teams think about their strategy, risk management, stress testing, and scenario planning.

Many organizations have “geopolitical risk” as a single line item on their risk register. However, this can make it hard to effectively monitor and manage these risks, and prioritize resources accordingly. There are a number of questions that Boards can ask management teams for reassurance that they are not exposed to unexpected geopolitical developments:

  • How and when are geopolitical risks being elevated to board level?
  • How are geopolitics, ESG and technology being considered in your strategy?
  • If the risks are owned by your CRO or CIO, do they have sufficient influence and presence to bring the right insights to the strategy setting process?


It’s a not a question of if your organization will be subject to a cyberattack, but when.

  • Do your management teams have a plan in place for how they would respond in the first 24-48 hours?
  • Has this plan been stress-tested?

In considering the direct business or reputational risk of unequal recoveries:

  • What are some of the next issues that might gain public and company attention because of the (perceived) lack of governance?

About BLC

The Board Leadership Center offers non-executive and executive board members and those working closely with them (including CROs and Heads of Internal Audit) a place within a community of board-level peers. It also offers access to topical seminars and more technical Board Academy sessions, invaluable resources, thought leadership and lively and engaging networking opportunities.


Compiled by Kimberly Rofrano, BLC Program Manager, kimberlyrofrano@kpmg.com