Geopolitical risk has always been priced into investment decisions, but rarely has it demanded a rethink of the assumptions beneath them. Today it does. The question facing long-term investors is no longer whether geopolitical events move markets. It is whether the frameworks built over decades to guide portfolio construction, exclusion policy, and asset allocation still hold in a world that is becoming less rules-based, more fragmented, and harder to model.
To examine what that shift means in practice, NordSIP and Clarity AI brought together Marcus Svedberg, Chief Economist at Folksam; Kristofer Dreiman, Chief Sustainability Officer at Länsförsäkringar; and Patricia Pina, Chief Research Officer at Clarity AI, moderated by Aline R. Gustafsson, CFA, Editor of NordSIP. Three practitioners, three vantage points: macro, policy, and data.
What emerged was neither alarm nor complacency, but something more useful: a clear-eyed account of how investors are rewriting their playbooks, from rethinking exclusion criteria around defense to ensuring that what investors say about their portfolios accurately reflects what they actually hold.
How geopolitical risk and the new macro regime are reshaping investment policy, exclusions, and asset allocation
The conventional wisdom on geopolitical risk has long been reassuring; however dramatic the headlines, asset prices tend to absorb the shock and move on. But as Marcus Svedberg, Chief Economist at Folksam, notes, that view comes with an important condition: “Asset prices don’t tend to be long-term impacted by geopolitical events. But if the geopolitical event impacts commodities, then it may be different.”
“Asset prices don’t tend to be long-term impacted by geopolitical events. But if the geopolitical event impacts commodities, then it may be different”
Svedberg points to the Strait of Hormuz as a case in point, with over 20% of global oil and gas passing through it, any disruption feeds directly into inflation, reprices interest rate expectations, and leaves a mark on bond markets that equity indices, still buoyed by strong corporate earnings, have yet to fully reflect.
What makes today’s environment structurally different goes beyond energy markets. Country risk, sovereign bond exposure, and cross-asset correlations are all being re-examined. The rules-based order that reinforced those frameworks for decades is eroding, and the investment industry is only beginning to work out what replaces it. The vocabulary shift is telling, as Kristofer Dreiman, Chief Sustainability Officer at Länsförsäkringar, observes, “We have almost exchanged the words ESG and sustainability for resilience, independence, and sovereignty in the last 24 months.” It reflects a genuine recalibration of what investors consider material risk.
“We have almost exchanged the words ESG and sustainability for resilience, independence, and sovereignty in the last 24 months.”
Nowhere is that recalibration more visible than in the debate around defense. Nordic investors, historically among the strictest in applying exclusions to the weapons sector, are revisiting policies that in some cases date back over a decade. Yet the shift is not unconditional; sensitivity towards involvement in conflict and potential human rights violations remains high, and beneficiary expectations continue to set real limits on how far the defense pivot can go. Meanwhile, the broader question of how to handle norm violations is becoming more demanding; the caseload is expanding, the analytical work is harder, and the principle of engaging before excluding is under growing pressure.
Why data accuracy has become non-negotiable
As the number of conflicts grows and investment policies become more nuanced, the demand for reliable, granular data has moved from useful to essential. Deciding whether a company is involved in a norm violation, whether linked to human rights, labor rights, or operations in conflict-affected areas, is not a mechanical exercise. It requires triangulating multiple sources: data providers, company disclosures, and independent authorities such as NGOs or public investigations. When those sources align, the path forward is clearer. When they contradict each other, the analytical burden falls on the investment team, and the margin for error is decreasing.
The starting point is understanding what you actually own. As Patricia Pina, Chief Research Officer at Clarity AI, explains: “Understanding which companies are exposed to conflict-affected contexts is the starting point, whether because they operate in a particular region, have joint ventures with governments involved in conflict, or through their suppliers. Beyond exposure, you need to understand the allegations, the nature of the wrongdoing, the scale and scope, and most importantly, the company’s response.” Data can inform all of those dimensions. What it cannot do is make the decision. The interpretation of that data, against the investor’s mandate, their beneficiaries’ expectations, and their own principles, remains an internal exercise that no provider can replace.
“Understanding which companies are exposed to conflict-affected contexts is the starting point, whether because they operate in a particular region, have joint ventures with governments involved in conflict, or through their suppliers. Beyond exposure, you need to understand the allegations, the nature of the wrongdoing, the scale and scope, and most importantly, the company’s response.”
Where the field is heading is toward real-time monitoring: mapping geopolitical events as they unfold, new export controls, shifting alliances, escalating conflicts, directly to the companies in a portfolio through their revenues, supply chains, and counterparties. That capability is not fully here yet, but the combination of knowledge graphs, structured ontologies for political risk, and large language models is making it increasingly within reach.
Best practices for delivering meaningful transparency
Regulatory pressure on transparency has increased significantly across Europe, and the reporting burden that comes with it- sustainability reports, SFDR reports, taxonomy disclosures- shows no sign of easing. But volume alone does not equal transparency. A detailed, lengthy sustainability report is a static document in a fast-moving environment, and the investors building real trust with their beneficiaries are those who go beyond compliance, communicating in ways that are timely, honest, and legible to the people whose money is at stake.
Meaningful transparency starts with traceability. As Patricia Pina explains: “Full traceability means not only the raw input data, but also how that data is processed, transformed, and used as input for models. And being able to explain the assumptions, the limitations, even the confidence level of those predictions.”
“Full traceability means not only the raw input data, but also how that data is processed, transformed, and used as input for models. And being able to explain the assumptions, the limitations, even the confidence level of those predictions.”
This matters especially as investment decisions face growing scrutiny from regulators and stakeholders who want to verify that investors do what they say. The risk of appearing to say one thing and do another (whether on climate, human rights, or defense) is reputational as much as regulatory, and it is particularly acute for asset owners who rely on external managers or pooled vehicles and have less direct control over underlying holdings.
AI is helping to close the efficiency gap in reporting, accelerating data extraction, identifying patterns, and generating standard templates in a fraction of the time previously required. But as Pina mentions: “When AI is used for predictions or recommendations, understanding where and how it is being used, what human oversight is in place, how you are controlling for potential biases, those are newer transparency requirements that are becoming as critical as the traditional ones.” The tools are more powerful than ever; the obligation to explain them clearly is growing at the same pace.
“When AI is used for predictions or recommendations, understanding where and how it is being used, what human oversight is in place, how you are controlling for potential biases, those are newer transparency requirements that are becoming as critical as the traditional ones.”
Integrating geopolitical signals into long-term strategy
For large asset owners managing long-term liabilities, the temptation to react to geopolitical noise is real, and resisting it is harder than it sounds when headlines are moving daily and stakeholders are asking questions. The discipline required is not passivity. It is the ability to distinguish between signals that genuinely warrant a strategic response and events that, however dramatic in the moment, are unlikely to alter the long-term trajectory of a well-constructed portfolio.
The practical approach that emerges from investors navigating this environment is one of deliberate continuity with selective adjustment. Core portfolio construction does not change with every geopolitical development. What does change, gradually and carefully, is the set of assumptions underneath it. Is country risk still what it was? Do historical correlations between asset classes still hold in a world where sovereign behavior is less predictable? How should strategic asset allocation reflect a shift toward a less rules-based global order? These are not questions with quick answers, but they are the right questions to be asking now.
On the question of defense investment specifically, Marcus Svedberg cuts through the noise: “The biggest exposure for a lot of investors is through sovereign bonds. Most defense is financed through the budget. European governments are promising to increase defense spending to 5% of GDP, so they are going to issue more bonds, and we buy the bonds.” For most large European asset owners, the geopolitical recalibration is already underway in fixed income; quietly, and largely through existing mechanisms.
“The biggest exposure for a lot of investors is through sovereign bonds. Most defense is financed through the budget. European governments are promising to increase defense spending to 5% of GDP, so they are going to issue more bonds, and we buy the bonds.”
The last word of caution is about inflation. Geopolitics does not move markets reliably in the short term, but it moves commodities, commodities move prices, and prices move bond markets. In a world of rising defense budgets, fragmented supply chains, and persistent conflict, the inflationary undercurrent is unlikely to disappear. For long-term investors, the bond market remains the most honest signal available, and one worth watching closely regardless of what equity markets appear to be saying.
Turning geopolitical complexity into investment clarity
Geopolitical complexity is not a temporary condition to be waited out. It is the environment in which investment decisions will be made for the expected future. What distinguishes the investors best equipped to navigate it is their commitment to building the right foundations: coherent frameworks for thinking about macro risk, data infrastructure that translates geopolitical context into actionable portfolio insight, and transparency practices that hold up to scrutiny from regulators, beneficiaries, and their own principles.
The practical starting point is deceptively simple: begin with the decision you need to make, and work backwards to understand what data you need to make it well. In a world that will keep generating new complexity, that discipline, more than any single tool or dataset, is what separates reactive from resilient.
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