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Geographic Risk


For multinational firms operating in our increasingly interconnected global economy, the importance of analyzing and managing geopolitical risk is more evident than ever. Geographic risk can impact investment portfolios in at least two ways. The first type of risk involves direct investments in companies domiciled in countries in turmoil like Burma, Sudan or Iran. The second level of risk involves indirect investments in foreign companies which have substantial operations in a country deemed to be susceptible to social and political disruption. In either situation, shareholder value in these companies may be in jeopardy. Public companies should have a robust internal compliance system to ensure that it properly follows the laws and regulations of each country it operates.

Methodology

Our analytical framework seeks to assess our clients’ portfolio companies to determine if the company does business in any countries deemed to be "high risk" due to poor labor conditions, lack of political rights, a free media, civil liberties or political freedom, or systematic human rights controversies. We assess the impact a country’s political situation can have on workers employed by the company, its subsidiaries, suppliers or contractors. Using data from various third-party sources, we have developed our own proprietary rating methodology for assessing labor, human rights and geopolitical risk in over 200 countries to produce a geographic risk sub-score based on the company’s global operational footprint. 

Sources of information used in this category include: 

  • International Labour Federation (ILO)
  • Freedom House
  • U.S. State Department
  • World Bank
  • AFL-CIO 

This exercise allows us to gage the risk inherent in a company’s global operations.