Mitigating the Ultimate Systemic Risk

As investors increasingly focus on systemic risks, few risks are as consequential as the weakening of democratic institutions and the rule of law. Companies are facing once-in-a-generation operational and strategic challenges—navigating AI, workforce shifts, energy transitions, and stakeholder pressures, in an increasingly chaotic political environment. Without a stable, functioning government, challenges like these are almost impossible to manage effectively, and the foundation for innovation and long-term value creation begins to crack.  

The result: companies face growing exposure to financial, operational, and reputational risks (see Figure 1), with little clarity on when or how to engage.  

As an investor, it can be difficult to translate the risks from weakening rule of law into concrete actions companies can take to mitigate those risks. Focusing on public affairs governance – how companies make decisions about whether and when to engage in the public sphere, can be one helpful lens.

Why Focus on Public Affairs Governance 

Making decisions about corporate engagement in the public sphere can feel like walking a tightrope for many companies right now, and investors need to understand how companies are making and managing those decisions. All of this raises the bar for public affairs, understood broadly:

​“Public affairs is an organization’s strategy to monitor, manage and impact its business environment. It integrates government affairs; advocacy; communications; environmental, social and corporate governance; and issues management to influence public policy, build a strong brand and find common ground with stakeholders.” - The Public Affairs Council 

We believe that applying Corporate Political Responsibility (CPR) Governance, which is a set of best practices that include the key elements in Figure 2 to public affairs decisions, reduces risk, enables long-term value creation, and supports achieving business purpose and fiduciary duty.

It's time for investors to ask sharper questions—of companies and of themselves. Asking companies questions about CPR Governance helps investors in two ways: (i) it prompts companies to think more concretely about their public affairs practices and strengthen any areas of weakness highlighted by the questions, and (ii) provides investors the information needed to more effectively manage this systemic risk across their portfolio.

Questions to Companies 

Whether managing assets internally or through an investment manager, an investor’s due diligence should include questions about how the companies in which they are investing think about and manage public affairs. Questions to ask include: 

Questions for Investors  

Just as companies face competing pressures and new risks amid political instability, investors —accountable to their own beneficiaries — should also assess their own public affairs governance in this critical moment. Some questions to consider are: 

Resources to Help

Third Side Strategies is here to help. The CPR Hub offers a dynamic set of practical resources to support you where you are. Whether new to thinking about this, or knee-deep in examining how public affairs governance may impact your portfolio, we have resources to support you and help craft a customized approach that fits your situation.