Fifteen years ago, a US technology firm was essentially a Nato firm, in the sense that it could raise capital from investors across the transatlantic alliance and the wider Organisation for Economic Co-operation and Development, and expect to deploy that capital across the same footprint. Beyond Nato, capital still moved freely: US institutional capital into Chinese venture funds and Chinese money into US startups.
US policy-makers have now prohibited investment in sensitive Chinese sectors, while seeking to extend export restrictions through allies. Within Nato, policy-makers are implementing market incentives and applying political pressure to bring technological innovation as close to home as possible through instruments such as the European Union’s Scaleup Europe Fund and the Savings and Investments Union. China’s ‘three anti’ regulations put strict restrictions on the cross-border activities of firms operating in China, including foreign ones.
The weakening of US commitment to Nato has coincided with a dramatic shift of capital into sensitive sectors; in particular, artificial intelligence, semiconductors, critical minerals and the electricity to power AI. European defence, security and resilience startups raised a record $8.7bn in 2025, according to the Nato Innovation Fund. Silicon Valley has become increasingly intertwined with defence and national security, and it is precisely in strategic sectors that geoeconomic fragmentation is most pronounced, as reflected in the IMF’s analysis of Foreign Direct Investment data.
The politicisation of capital affects public and private markets in different ways. Flows into large, listed companies such as Apple or Microsoft remain mostly unimpeded. Disruptive technologies are concentrated in a small number of mostly privately held firms which selectively control access to their capital structure. Where those firms source their capital has become a material security question for their host governments. Consequently, both the product and the investor base have become strategic.
Partnerships between technology startups, the venture capitalists that back them and large pools of capital, such as sovereign and pension funds, have enabled AI champions to stay private and exert control over their capital base. The political relationships of founder-controlled firms are nimbler and more personality-driven and potentially better suited to navigating geopolitical challenges.
Building resilience across divergent futures
Regulation has not kept pace with technology, leading to sporadic government interventions driven by near-term political and security priorities. Firms must therefore anticipate policy-makers’ responses to their own innovations. The disruption extends well beyond technology; tariffs and industrial policy now affect most tradable sectors. Access to the US market may foreclose access to the Chinese market, and vice versa, with penalties possible from either side. On climate and ESG, what wins praise in Brussels may invite opprobrium in Washington.
So, what are firms to do? Some have looked to previous periods of deglobalisation. In the interwar period from 1918 to 1939, several large multinationals strengthened foreign subsidiaries and devolved operational power to regional managers, becoming, in effect, federations of national firms. More recent approaches include dual listings and friendshoring of global value and supply chains along geopolitical lines. Other firms, faced with uncertain regulation, have sought to build financial and strategic alignment with governments, or have even become part of government.
Another strategy is to follow the practice developed for handling climate risk. Markets have learnt to price it, regulators to govern it and boards to oversee it, all supported by the scenarios developed collectively by central banks and supervisors through the Network for Greening the Financial System. Investors will increasingly need to take a similar approach to geopolitical risk, permitting them to work out alternative portfolio designs that can hold up across a range of geopolitical futures. The same discipline applies to non-financial firms, which will need scenario-specific strategies for supply chains, capital allocation, and market entry.
Specialist firms such as Verisk Maplecroft, Eurasia Group and Control Risks produce geopolitical risk assessments, and multilateral bodies such as the IMF and the Bank for International Settlements have published substantial analysis on geoeconomic fragmentation. European supervisors have gone further: In January 2026, the European Central Bank and the European Systemic Risk Board jointly published a framework for monitoring financial-stability risks from geoeconomic fragmentation and the ECB has made resilience to geopolitical risk a supervisory priority for 2026-28. In July, the ECB went further still, publishing the results of a reverse stress test in which each of 110 supervised banks designed its own geopolitical scenario severe enough to deplete its core capital ratio by 300 basis points.
It is an open question whether this work will coalesce into a shared scenario framework, similar to the way climate analysis converged around the NGFS scenarios, as regulators move from climate risk disclosure regimes towards comparable expectations for geopolitical risk.
The burden of adaptation
The immediate burden falls on boards and management teams. While geopolitical risk analysis is available from specialist providers, its interpretation is a board matter that cannot be outsourced. Firms can no longer make tacit assumptions about the geoeconomic foundations their activities rest on. These must instead be explicitly specified. Boards and management teams need to decide on the geopolitical scenarios that their capital allocation must survive, which markets are sufficiently strategic to hold through periods of disruption, which are candidates for exit, which geostrategic choke points the firm is exposed to, which payment systems it relies on, and which political, financial, and commercial alliances the firm must actively cultivate.
Geopolitical risks and opportunities now shape firms’ strategy, capital base, product and even branding decisions and must be incorporated into business processes.
Håvard Halland is Professor and Chair of Sustainable Finance at Heriot-Watt University’s Edinburgh Business School, Knut Anton Mork is Professor Emeritus at the Norwegian University of Science and Technology, and Adam Robbins, is Partner at New York venture firm Collective Global.
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