The ability to diversify and hedge portfolios and supply chains to reduce dependence on single suppliers will be key to minimising risk exposure for businesses, as they tackle the risks emanating from the Russia-Ukraine war, according to a new report from Lloyd’s and Aon.
The joint report applies five plausible scenarios to the industries and geographies most affected by the conflict. Each scenario explores the possible short, medium and long-term effects of the war across a series of themes: supply chains, energy, food security, ESG, the climate transition, inflation and cyber.
The energy sector will likely be most impacted by the range of risks emerging from the conflict, the report warns. However, energy security and reputational concerns will be a key factor for all sectors in building risk mitigation strategies to respond to the conflict.
In addition to the immediate inflationary impacts, there will be second order effects from reduced food and energy supplies (with Russia alone providing a fifth of the world’s wheat and 40% of Europe’s gas) and higher business costs associated with reshoring supply chains.
John Neal, CEO of Lloyd’s, said: ‘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.’
Dominic Christian, global chairman of reinsurance solutions at Aon, added: “The Ukraine conflict touches us all, both as individuals and businesses. 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. I hope the front-line perspectives contained in this report help businesses understand the universality of the challenges, the ways they may evolve and how they may best navigate them as they make better-informed decisions.”