Why attend the new geopolitical risk course?
Staying ahead of geopolitical shifts is never easy, but the increasing magnitude and frequency of geopolitical changes means that further significant change can be predicted and, to some extent, prepared for. This makes the Chartered IIA’s training course on Geopolitical risk and the role of the internal auditor more relevant than ever – whether you need a refresh or an update, or are new to this area and need to understand more.
The topic may be daunting, yet the penalties of failing to identify the potential for, or impacts of, a significant geopolitical event can be huge. This course highlights key areas of global tension that internal audit should be watching and offers insights into how these may develop – and which areas are likely to be most affected.
It also offers practical guidance on how internal audit teams can support boards and help them to understand and manage emerging geopolitical risks. As geopolitical and geo-economic risk rise up the board agenda, this creates an opportunity for internal audit to use its expertise to extend the function’s reputation and strategic influence with senior management.
Awareness and understanding are vital, because there are trends that can be spotted by those attuned to the signs. There are also risks associated with over-familiarity – we tend to downgrade risks that have been on the radar for many months, but have not materialised. Those who recognise this danger are better placed to assess their potential impact more accurately.
Course leader Derek Leatherdale, Senior Geopolitical Risk Adviser at political risk firm Sibylline, points out that many organisations were taken by surprise when Israel and the US recently attacked Iran. Yet, he points out, the signs were there. Regional tensions are well-established, Iran had accelerating uranium enrichment to levels close to those needed for nuclear capability and Iran’s historical support for Hamas significantly increased the possibility of a direct attack after Israel committed itself to eradicating Hamas from Gaza.
Geo-economic threats
Sanctions, tariffs and other trade tensions are also causing huge uncertainty globally and have potentially massive impacts on some organisations. While most UK and EU companies have few dealings in Iran, which has been subject to sanctions for many years, the impact of increased US tariffs and an escalating trade war with China could have global economic repercussions. Financial services firms and related professional service providers, such as law firms, are particularly affected by sanctions, but they are not alone.
Another concerning development for internal audit and risk specialists is the rise of geo-economic measures being used in pursuit of national security objectives and reinforce diplomacy. Tariffs, trade restrictions and global regulatory requirements are now a key geopolitical policy tool for many governments.
President Trump’s use of tariffs – presented at least in part as a national security issue – has had a huge impact on nations around the world. Governments have responded by negotiating trade deals and imposing reciprocal tariffs, but companies are also responding by shifting their suppliers.
This is causing ripples across supply chains and for individual economies – the BBC interviewed people being laid off from garment factories in the tiny African country of Lesotho as a consequence of US tariff policy on 29 July. However, the US has also used the threat of tariffs to stop the threat of an escalation of hostilities between Cambodia and Thailand (both countries with significant manufacturing industries, plus some mining), so the geopolitical effects of economic power are varied.
“This course is not about any individual country, but about expert and specialised insights into those geopolitical trends and volatility that have potential to influence the global economy” Leatherdale says. These raise many questions for internal audit. “How do we anticipate and prepare for changes to tariffs? Who is leading this in the business? How effective are our processes at adapting and managing this?”
Fiscal stress
Bond markets are another area where volatility risks are increasing because of geopolitical tensions and high levels of state debt, Leatherdale says. But because bond markets are generally seen as dull and relatively predictable, they may not be high on internal audit’s radar. Things have changed, he warns.
Political changes, such as President Macron’s snap election last year in France, can cause bond markets to react quickly and stress spreads fast to other leading economies. US threats of high tariffs on the EU also made bond yields spike, particularly in France and Germany. A sharp rise in US national debt following President Trump’s “Big Beautiful Bill” is causing global financial nerves.
In the longer term, governments will deal with extreme fiscal stress at a central bank level, but internal auditors should watch the markets and ensure that management have plans to deal with short-term impacts of a financial crisis. Financial stress is often a consequence of multiple issues occurring around the same time – for example, wars are currently causing higher commodity prices – so internal audit needs to watch for red flags and reassess when something changes. If internal audit teams do not have financial market expertise, they need to find someone in the organisation who does and ensure that they are being kept informed.
Often, Leatherdale says, it’s the role of internal audit to raise questions that others in the organisation may be able to answer. Internal audit can then identify who should be monitoring geopolitical shifts, how changes are managed and how they can ensure important issues are raised and debated at the right levels – at the right time.
“Be honest,” he adds. “How many businesses anticipated oil price rises before Israel bombed Iran? We need to look at how we anticipate potentially severe future events – for example, what would be the impact of military escalation around Taiwan?”
Internal audit should constantly be asking whether assumptions are still valid and what the business can do to prepare. “Are we thinking about future geopolitical risks consistently and proactively?” Leatherdale asks.
Coordination and collaboration
One important angle is whether the various teams affected by geopolitical risk are working together effectively. Internal audit’s bird’s eye view puts it in a good position to give an overall perspective on collaborative processes as well as on whether plans are regularly updated. “The risk function and the company secretary will see some of this, but not all. Internal audit has the authority to look at how everything works together and to influence change by taking their findings straight to the audit committee,” Leatherdale says.
He highlights that it’s common to find pockets of good practice scattered across organisations, along with some areas that have subject matter experts who understand geopolitics, but that their insights are often not shared. Internal audit can identify these areas, analyse what is working and communicate these findings.
No one can plan for every eventuality, but Leatherdale promises this course will provide internal auditors with a repertoire of practical ideas they can take back to the office. Informal case studies will enable groups to discuss how issues are being dealt with in other organisations in a safe environment. They can also use this to benchmark their own work against emerging best practice.
Geopolitical risk affects all of us in some way – and some in many ways. If you have not updated your thinking about geopolitics lately and need a refresh and ideas, or if you have members of your team who will soon be working on financial risks, supply chains, tariffs, customs or sanctions, then this course is an excellent starting point.
The next Geopolitical risk and the role of the internal auditor course takes place on 6 November, 9am-5pm.