Home page: A geopolitics playbook for IROs
How to keep your investor base and internal audiences informed about geopolitical events
If the macroeconomic landscape of the past decade can be characterized, it is easy to paint it as a rapidly evolving one. Between a pandemic, wars breaking out in the Middle East and Europe and ongoing supply-chain problems, issuers have had to grapple with more than their fair share of extraneous factors affecting their bottom line.
For investor relations professionals – who stand at a crucial juncture between the markets and their company's internal stakeholders – it represents a mixture of challenges and opportunities. On one hand, the volume of information produced by the market that may be relevant to their many audiences has expanded significantly.
On the other hand, a more complicated macro environment offers more opportunities to communicate a value proposition to those same audiences.
In 2024, being across all of these macroeconomic factors is becoming increasingly important for companies. Not only do many of the issues that have characterized the past decade continue to have fresh impacts today, but there are also several others that will have lasting impacts on the worldwide economy.
For one, the threats and opportunities posed by AI and similar technologies are likely to affect every single corporate organization over the coming years. For another, around 2 bn voters – a quarter of the world’s population – are heading to the polls this year to elect new leaders, including in the US, Mexico, India and the European Union.
In this playbook, we will explore how to make the most of those opportunities and overcome those challenges, while also offering tips for how to set up your IR team for success against a changing geopolitical backdrop.
Included are two case studies of IROs who successfully navigated periods of significant global change while delivering value for their stakeholders.
For much of the world, it's fair to say, the past 12 months have been characterized by extreme change. According to a poll conducted by IR Magazine, the same is likely to be true for the next year, too.
Respondents were asked to rank a series of geopolitical events and risks based on how critical they would be to their organization over the course of the next 12 months, with a low average ranking indicating a higher level of criticality.
Inflation consistently comes out as the most critical issue for companies across the board, receiving an average ranking of 3.4, chosen as ‘most critical’ by 14 percent of respondents. This is perhaps unsurprising as the single issue most likely to impact companies irrespective of industry, region or cap size: inflation directly affects operating costs and purchasing power, and has contributed to a higher interest-rate environment, which in turn impacts business growth and consumer spending.
Inflation is followed by central bank policies (average ranking of 4.7), many of which have arisen out of a need to combat inflation, and energy price and availability (5.5), which has been one of the main contributing factors to soaring consumer costs in the wake of Russia’s invasion of Ukraine. Fluctuations in energy price can dramatically affect production costs and logistics, while availability issues can disrupt operations.
Following these are five issues that rank fairly similarly: the threat of cyber-attacks, ongoing supply-chain issues, internal issues (including succession planning), the war in Ukraine and AI & other technology. After that, with an average ranking of seven and above, are the three least-impactful issues for the next year: national and international elections (7.2), the ongoing war in the Middle East (7.3) and climate risks (7.8).
Two respondents name regional issues that are uniquely impactful to their companies and not mentioned elsewhere in our research: one cites ongoing tensions and trade disagreements between China and Taiwan, while another mentions the current, fiercely competitive state of the payments industry in Brazil.
The ranking reflects the fact that IR professionals’ top concerns at the moment are more immediate, directly economic concerns – such as inflation, central bank policies and the energy crisis – while longer-term strategic issues such as technology and climate risk or issues that may affect only particular regions – such as the wars in Ukraine and the Middle East – are not in focus for the next year.
For many listed companies, however, being on top of those longer-term factors can be just as crucial as being well apprised of shorter-term impacts. Setting your IR team up for success and having several ways of monitoring those impacts are crucial to maintaining an open, candid and ongoing dialogue with various stakeholders.
Indorama Ventures is a global chemicals company listed in Thailand, with manufacturing operations in 35 countries. More than 70 percent of the company’s revenues come from applications in daily necessities like polyethylene terephthalate resins for food and beverage packaging for customers such as Coca-Cola and PepsiCo, or surfactants used in soaps and detergents for companies such as P&G and Unilever.
‘We acknowledge that our operating environment has changed meaningfully amid profound structural shifts in global chemical markets in the last few years. We now live in a challenging macroeconomic environment, characterized by geopolitical tensions, inflationary pressures, higher interest rates and sluggish economic growth.
'Geopolitical tensions are putting pressure on energy and feedstock prices, and rendering global logistics more complex and expensive. This is especially impacting the European environment, resulting in high cost and weak demand due to inflationary pressures.
‘Specific to our industry, subdued local demand in China is driving overcapacity and fueling cheap exports, putting pressure on both volume and margins. Higher interest rates are driving up capital costs and testing the viability of many companies’ business models.
'Feedstock prices in western markets will increase over time as peak oil demand draws closer and refineries shut down, while the reverse will occur in emerging Asian markets as capacity rises, driving feedstock costs lower.
‘In response, we are implementing numerous management actions internally that are under our control. Despite not anticipating significant increases in spreads or margins in the next two years, we expect our earnings to reach peak levels by 2026.
'This will be achieved by improving quality of earnings through innovation, increasing sustainable products, using digital tools and cutting fixed costs by right-sizing our assets footprint. We are also reducing our debt through an IPO of two subsidiaries and divestment of two non-core businesses.
‘Internally, we have held several town hall meetings with our employees, who interact with different stakeholders. We discuss the key messages we need to communicate. On the business side, we have several differentiations and strengths, such as proximity to our customers in multiple countries, as one example. We communicate these details and nuances both internally and externally, using platforms such as our annual capital markets day event to start with, followed by updates.
‘For external insights, we rely on consultants that specialize in their respective fields, such as IHS, ICIS or Wood Mackenzie, and also feedback from our interactions with multiple stakeholders. Internally, we hold regular business meetings where managers provide updates.
‘Additionally, we work with external consultants on specific projects and have recently completed the implementation of the SAP S/4HANA tool to enhance our capabilities. We are now working on an integrated business-planning tool to further leverage our digital platform. Another critical component of our strategy is peer benchmarking and analysis, which is a routine part of our work.’
Geopolitical tensions are rendering global logistics more complex and expensive
When it comes to keeping up with the latest macroeconomic events – and starting to judge their impact on your organization – there are several different data sources IROs turn to.
When asked which sources they consult on a regular basis regarding geopolitics, the most popular choice is to seek external expert opinions, chosen by 59 percent of respondents. Following that is analyst notes about peers and central or regulatory policy notes, both selected by 50 percent of IROs, and earnings calls or transcripts of peers, cited by 46 percent of those polled. Social media is something only one in five respondents (20 percent) say they consult regularly.
Those polled were also invited to specify any other data sources they regularly use to assess the impact of geopolitical events: conversations with customers, mainstream media reports, news flow in general, economic reports and seeking the opinions of internal subject matter experts are all named by respondents as potential sources of intelligence.
When asked whether they use market data to shape their messaging, a large majority of IR professionals say they do. A third of respondents – exactly 33 percent – say they always use some element of market data to shape their investor messaging, while exactly 50 percent say they sometimes do. Only 7 percent say they don’t always use market data in this way, and 9 percent say they never do.
When asked to elaborate on their answers, most comments make mention of using such intelligence as a means of comparison or contrast with their company’s story. Others say it depends on the particular topic, or the relevance of any given metric to a particular stakeholder audience.
Many respondents note how crucial market intelligence is to their overall messaging strategies, however.
‘The investor relations team evaluates developments across the countries and end-markets in which we do business,’ writes one IR professional. ‘We closely follow those companies relevant to our business, monitor relevant headlines, frequently interact with both the sell side and the buy side, and then share our findings and their implications internally to provide additional perspective from a much wider audience.’
Some respondents mention specific factors they keep abreast of. For example, one IRO at a defense company says the current geopolitical environment is a direct factor in her firm’s recently increased revenues, so she uses market data for identifying where defense budgets might increase. Another, an IRO at an energy company, says that given such a volatile market, he is depending on such analysis not just for communications, but also to turn back internally to provide intelligence for his colleagues.
‘In my industry there is a great deal of information available from competitors and market conditions,’ writes another IR professional. ‘We should use that for our messages to make sense for our investors.’
As one respondent puts it succinctly: ‘Market data shapes everything’.
Comparison of market evolution to explain our own share price evolution
Depends on topics communicated
Energy is such a volatile market, effected through multiple disciplines. For this reason, we are dependent on analyzing market data and implementing it onto our day-to-day business
Factors affecting demand-supply and financial performance of our business shape our market outlook, and are included as references in our announcements and reports
In my industry there is a great deal of infomation available from competitors and market conditions. We should use that for our messages to make sense for our investors
Market data shapes everything
Market sentiment influences the tone of the messaging and supports the point we are trying to make
Market share and other syndicated and big data
Messaging is aligned with current events
We use Nielsen, government data on production, consumer sentiment, and so on
Review competitors' global peers to test consistency or differences
Seeing what the sentiment and key concerns are help with how we should position our messaging
We evaluate developments across the countries and end-markets in which we do business. We closely follow those companies relevant to our business, monitor relevant headlines, frequently interact with both the sell side and the buy side, and then share our findings and their implications internally to provide additional perspective from a much wider audience
We actively read industry and peer reports to shape our messaging
We are a defense company, hence the geopolitical environment is more beneficial at the moment. We usually use market data for defense budget development
We leverage industry data on consumer trends and household penetration
We're heavily impacted by raw material costs, energy prices, interest rates, and so on
When relevant, we talk about how what's impacting the market is impacting our revenues
With macroeconomic factors changing on a daily basis, the hallmarks of good investor relations come to the fore. From speaking to IROs across the board, the following emerge as the hallmarks of responding to geopolitical events with agility:
Establishing a rapid response team
Real-time monitoring tools
Frequent communication, both internally and externally
Frequent engagement with stakeholders, internal and external
Scenario planning
Crisis-response plans for geopolitical events
Flexible messaging frameworks
Keeping shareholders informed on all of the above.
We first asked respondents whether they run regular scenario-planning exercises with their IR team – or other internal teams – in order to be able to respond fittingly to various events. More than a quarter (26 percent) say they never do, while 42 percent say they run scenario planning on an ad hoc basis. Of those who run scenario planning regularly, only 2 percent do so monthly, 11 percent do so at least quarterly and 19 percent do so on an annual basis.
When it comes to crisis-response plans, the majority of survey respondents – 52 percent – do not have one in place that caters for geopolitical events.
Just 35 percent of respondents say they have one in place already, with the remaining 13 percent saying they do not know.
When asked how they communicate these measures – specifically geopolitical risk assessments and crisis-response plans – to shareholders, the most popular response from IROs is via one-on-one meetings (46 percent of respondents), followed by virtual meetings (33 percent), suggesting that most IR professionals prefer to explain these measures in detail where possible. Other popular means include press releases (31 percent), telephone calls (30 percent) and other documentation (30 percent).
This underscores the fact that while several of the listed tools are key to responding to macroeconomic events with agility, many IROs do not make full use of them.
Loblaw Companies is a Canadian retailer encompassing corporate and franchise supermarkets and is the largest food retailer in Canada. MacDonald and his colleagues worked closely with the Canadian government during the pandemic to help address the public’s concerns about how inflation was impacting the price of their shopping baskets.
‘When macroeconomic factors [such as inflation] start to influence a consumer staples company, everyone starts paying attention. Being in retail, we’re where customers open their wallet. Suddenly, our domestic world – the Canadian market – just went global. Specifically in our grocery division, we were suddenly tracking macro factors impacting global shipping or [Consumer Price Index] rates in different countries around the world to assess and better understand their inflationary pressures.
‘Instead of just keeping an eye on our domestic peers, we started looking at our global peers and the global supply chain, and began to glean insights into the causes from their reports and what they were saying to their analysts on their quarterly calls. We also spent more time on social media, getting a general feel for not only what the newspapers were saying but also what social media sites were saying about related issues. It’s changed and increased our workload, but it has been a super-interesting process.
‘When we’re getting ready for our quarterly results calls, instead of only talking to our shareholders and colleagues – who are generally our two biggest audiences – it’s now the Canadian consumer who is indirectly listening to every word you say on that call to address a wider audience. You have to rethink the way you’re messaging on the call.
'We were also called in to help corporate communications teams prepare packages for external stakeholders, such as the government, to address their questions about food price inflation.
‘For example, we prepared reports that looked at the percentage of disposable income spent on food at home, on global food at home, inflation rates and trends, showing that Canada has had the second-lowest food inflation rate in the G7, and trying to explain the macro factors contributing to the US experiencing lower inflation than Canada. This greatly expanded what we would normally do in terms of satisfying our domestic investor questions on the subject.
Instead of just keeping an eye on our domestic peers, we started looking at our global peers and the global supply chain
‘Then, for the world’s other consumer goods companies, we looked at all of their analyst transcripts and used AI where possible to sift through and show us any meaningful trends.
'For example, if one of these companies mentions its ability to change prices on its analyst call, it’s a useful data point for us when it says it managed to grow sales by 12 percent and it only cost it two points in volume to do it. That kind of information became a key part of our story to help educate others that we are not the bad guys in a global supply chain.
‘We have a crisis-response plan or playbooks for macroeconomic events. If something comes up on the government side or on the legal side, IR is kind of the go-to in the business to get a cohesive story together or to understand a situation, because we touch every part of the business.
We have a crisis-response plan or playbooks for macroeconomic events
‘We have to be subject matter experts on every aspect of the business, whether it’s logistics, sales, financial planning or strategy, so we tend to get the call very early to help address competitive intelligence and market intelligence, and understand how this impacts the different parts of the business. Investor relations is very well positioned to step in and help lead those kinds of efforts, which is part of what makes the job exciting, too.
‘Something we’re now looking at is whether we could target a competitive review of transcripts and analyst reports for our supply chain, get AI to prepare a summary of what they are saying that may be of interest to us as a customer and then prepare those for our buying groups in the company.
'There’s a lot of great information out there if you have the time to stay on top of it and AI sounds like the perfect tool to bring some value to the company in areas of the business that IR doesn’t usually interact with.’
From handling the complexities introduced by technological advances and electoral shifts to coping with pandemics and conflicts, IR professionals are at the nexus of interpreting and communicating the impact of these events to stakeholders.
Despite a variety of stages of preparedness – as revealed in the poll, where scenario planning and crisis-response readiness both show room for improvement – our research underscores the importance of agility, strategic communication and informed responsiveness.
The journey from awareness to action in the realm of investor relations is fraught with complexity but, with the right tools and strategies as outlined, IROs can elevate their role, ensuring their companies are not just weathering storms but also strategically sailing toward long-term value creation.
