Hard and soft political risk: What FTSE-100 companies have to say

General Politics

The political environment facing large international businesses has rarely been more uncertain or more complicated. Over the past twelve months, the UK has voted to leave the European Union, Donald Trump has become President of the United States, and Dilma Rousseff has been impeached and removed from office as President of Brazil.

In Turkey, a new constitution has concentrated power in the hands of President Erdogan, who has suppressed internal opposition since the coup attempt in July 2016. In France, the established political parties have been pushed aside in the presidential elections, with a party formed less than a year ago winning a landslide majority in the national assembly. In Italy, the prime minister was forced to resign after he failed to reform the constitution and the electoral system, just as the government is attempting to deal with a banking crisis.

Across rich countries, in particular, there are signs that governments are struggling to address the side-effects of globalisation and technological change, which are increasing inequality and fuelling disillusionment with economic models based on openness to trade, investment, and migration.

This political uncertainty has reflected – and created – policy uncertainty. And that political and policy uncertainty has contributed to a proliferation of hard and soft political risks facing business, which means large international companies must now operate in a much more complicated environment.

But how do businesses themselves assess these risks? Which do they judge to be serious, potentially impacting directly on the success of their operations? And which are just background noise?
These questions are addressed in this report, which considers how some of the biggest and most important companies – the FTSE-100 – report on the political risks they face.

Our analysis is based on what these companies say about political risks in their annual reports for financial years ending in 2016, which were published in a cycle running from May 2016 through to May 2017.

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The views expressed in this note can be attributed to the named author(s) only.