War in Ukraine:\\
Risk Impact
BCG Global Advantage and Risk & Compliance Practice Areas
Prepared: 31 March 2022

Prepared: 31 March 2022

Introduction to this document

The war in Ukraine is above all a politicaland humanitarian crisis…

The top priority in moments like these must be thesafety and security of people. Corporates,
governments, and non-for-profit organizations
should focus on supporting the people in Ukraine,
Russia, Europe, and globally affected (physicallyand mentally).

It is the duty of political, societal, and businessleaders to navigate through this crisis. The intent
of this document is to inform discussions anddecisions on the global economic impact aswell as the sanctions, regulatory and risk
impact of the war in Ukraine.

Copyright © 2022 by Boston Consulting Group. All rights reserved.

Russia's invasion of Ukraine has led to a serious
humanitarian crisis. BCG condemns this attack
and the violence that is killing, wounding, anddisplacing so many people.

The situation surrounding Ukraine is dynamic andrapidly evolving - this document reflects
information and analysis as of 31 March 2022.
It is not intended as a prediction of future eventsand is shared only as a resource for BCG and client
conversations.
2

IMPACT ON RISK
The war in Ukraine marks a tectonic shift in the global business landscape, one withmultiple short- and long-term strategic implications for companies.
Leaders must not only mitigate the risks to their business models caused by priceshocks, supply disruptions, and sudden shifts in demand. They must also navigate the

BCG Executive
Perspectives

risks to their corporate reputations as they comply with sanctions and grapple withIN THIS DOCUMENT

In addition, companies should weigh risks that could arise under several scenarios if thewhether to suspend Russian operations or pull out entirely—as well as the potential
consequences for their personnel and assets in Russia.

conflict broadens. What if sanctions are extended to third countries or business partners

that decide to assist Russia, for example?
As the war unfolds, companies will need to shift their focus from managing the
emergency to reassessing the risk and sanctions compliance landscape. This
assessment should cover customers and connected third parties. Companies should
review their global operations and businesses under a range of scenarios, as well as
their preparedness for potential cyberattacks. In addition to immediate tactical moves,companies need a strategic action plan to mitigate risks and make their organizations
more resilient to future disruption.

Prepared: 31 March 2022

War in Ukraine:
Risk Impact

Perspective on risk impact
Sanctions and policy actions
Risks for companies
Implications for companies

Copyright © 2022 by Boston Consulting Group. All rights reserved.

AGENDA

4

Prepared: 31 March 2022

Risks rooted in global tectonic shift arising from the war
War in Ukraine has elicited unprecedented international response, including sanctions and policy actions thatgenerate uncertainty for the global economy. Drivers of company risk arise from this context

Sanctions &policy actions

Measures targeting Russia | Increasing number of trade controls on strategic imports/exports (e.g., dual-use militarycivilian items), ~3,650 sanctions targeting Russian individuals, corporations, and financial system. Further policy actions
disrupting business, diplomatic and cultural ties
Retaliation by Russia | Russia restricting exports of agriculture, industrial equipment, social media (e.g., Facebook).
Companies with Russian operations have limited options to protect assets and operations
Uncertainty | Risk of further escalation (e.g., secondary measures, asset seizures), accelerated long-term decoupling (e.g.,parallel financial, energy & tech systems) and potential actions taken by other countries (e.g., Eurasian Economic Bloc)
Strategic | Risks to business models and reputational concerns, with significant impact on portfolio decisions (e.g.,
localization) and short to medium-term priorities (e.g., company decarbonization targets and initiatives)

Risks forcompanies

Business & Operational | Potential top-line disruptions from price and demand shocks, supply shortages and cyber attacks
Financial | Increasing financial distress, but remains below COVID levels given the lower direct systemic impact – yet
uncertainty from 2nd order risk implications
Regulatory compliance | Map exposures to new and escalating trade compliance requirements, sanctions and policy actions
across footprint, financial transactions, and supply chain. Identify and implement proactive controls against potential liabilities

Implications
for companies

Scenario-based planning | Shift to continuous stress testing and trigger-based actions to rapidly adapt to new contexts,
ensuring comprehensive coverage of direct and indirect risk exposure
Build resilience | Build buffer to secure critical services (e.g., dual sourcing)Note: BCG does not provide legal or regulatory advice; Source: BCG analyses and experience5Prepared: 31 March 2022

AGENDA

Perspective on risk impact
Sanctions and policy actions

Risks for companies
Implications for companies

Copyright © 2022 by Boston Consulting Group. All rights reserved.

War in Ukraine:
Risk Impact

6

Prepared: 31 March 2022

4 types of sanctions and policy actions applied on Russia,
increasing risk across industries"Western" Allies
NON-EXHAUSTIVE

Sanctions/policy actions Types of measures
Trade
Policies

Individual/
Corporate

Financial
Institutions

Diplomatic/
Other2

Selected applied measures

Impose export and import controls withsevere penalties/prosecution

Halted sale of dual-use components

Limit investment and public or private
sector business relations

Cancelled certification of Nord Stream II

Banned imports of Russian energy
Banned Russia ships from docking

Bar individuals from travel, and accessto funds/assets1

Seized assets (e.g., yachts, houses) from sanctioned oligarchs
and lawmakers

Bar or limit companies' operations

Froze bank accounts linked to sanctioned oligarchs &lawmakers

Freeze bank accounts and funds

Removed selected Russian banks from SWIFT

Ban transactions in foreign currency

Froze assets of Russia's Central Bank

Block FIs from financial systeminfrastructure

For details, see V4.0 of Ukraine Perspectives: FI Impact

Reduce/cut diplomatic relations

Closed access to airspace for Russian flyovers

Block participation in sporting andcultural events

Barred Russia from most sporting competitions, incl.
Paralympics, FIFA, UEFA, etc. (global)
Russia expelled from Council of Europe

Note: BCG does not provide legal or regulatory advice; information is non-exhaustive 1. US extends sanctions on companies that are ≥50% owned by sanctioned individuals/entities 2. Sanctions laws arecomplex; not all countries' legal regimes follow the above categories strictly e.g., US comprehensive sanctions on the Ukrainian regions of Crimea, Donetsk, and Luhansk essentially preventing all
business dealings Source: Tony Blair Institute for Global Change (As of March 22nd, non-comprehensive); Government reports; Press clippings; BCG analysis

7Prepared: 31 March 2022

Measures applied on Russia expected to have far-reaching risk impact"Western" Allies
NON-EXHAUSTIVE

Sanctions/policy actions
Trade
Policies

Individual/
Corporate

First-order impact

Second-order ramifications

Inability to import strategic products (e.g., repair parts) Supply chain shortages at global scale (e.g., palladium, nickel)
Long-term risk of losing competitiveness for critical sectors
Inability to export key products (e.g., oil & gas,
deploying imported tech (e.g., O&G exploration, Auto)agricultural output)
Difficulty to circumvent measures (e.g., shipping via 3rd
countries)

Sanctioned individuals and corporates unable toaccess capital, foreign assets or travel to certain
destinations"No business" long-term stance by risk-averse companies
Foreign currency reserves drainage (mainly USD)
Sanctions affecting companies owned by targeted individuals(e.g., Chelsea FC)
Effects on entities supporting transactions related tosanctioned individuals (e.g., international banks)
Cryptocurrencies under closer scrutiny

Financial
Institutions

Financial Institutions based in Russia unable toaccess foreign currency, assets and capital
markets

Diplomatic/
Other2

Diplomatic and cultural isolation
Strategic government-to-government relations
haltedPivoting of Russian financial system to alternative
currencies (e.g., RMB)
Western banks operating in Russia closing operations
and risking assets seizure
Ceasing cultural and intellectual exchanges (e.g.,sports, R&D, academics)
Inability to align on long-term global challenges (e.g.,
Climate Change, space exploration)

Note: BCG does not provide legal or regulatory advice; information is non-exhaustive. Source: Government reports; Press clippings; BCG analysis

8Prepared: 31 March 2022

Retaliation is under way; limited choice for companies operating in Russia
RussiaNON-EXHAUSTIVE

Focus | Selected Russian actions
Banned exports of machinery, equipment andagricultural products to certain countries•

Pressuring Western consumers and companies

Re-registered foreign-leased planes from
Bermuda to Russian registry•

Exposing Western lessors to $ billions of write-offs

Proposed legislation allowing seizure or
expropriation of foreign-owned assets in
Russia•Three options for foreign companies,
all of which raise reputational risk
1. Continue 'business-as-usual' operation
2. Cease operations• Potentially, face risk of expropriation
and/or criminal charges

3. Transfer assets to a local 'business
partner' shareholder• Challenge to attain a fair market value fortransferred assets• e.g., Major O&G players faced potential
significant write-offs from the sale ofRussian assets

Exposing owners to write-offs

Note: BCG does not provide legal or regulatory advice; information is non-exhaustive. Source: Government reports; Press clippings; BCG analysis

9Prepared: 31 March 2022

Outlook | Key uncertainties for sanctions, policy actions, and global decoupling
NON-EXHAUSTIVE, KEY QUESTIONS TO CONSIDER REGARDING MEASURES

Allied measures over Russia & others
How effectively will US/EU/Allies enforce the sanctions,policy actions and anti-circumvention measures?
(e.g., transshipment via 3rd countries to Russia)
Will secondary sanctions/policy actions be imposed
upon countries aligned with Russia?
Will the scope of measures intensify with escalation(e.g., EU ban on O&G imports)?
Will allies attempt to regulate cryptocurrency to prevent
black market and evasion by sanctioned
individuals/companies?
Would sanctions and policy actions remain in place after
a diplomatic resolution to the conflict? If so, for how long?

Retaliatory measures by Russia & others
Will Russia escalate its retaliatory measures? E.g.,• Seize assets of foreign firms that leave the country• Restrict foreign ships from entering Russian ports• Cut gas supplies to the EU
Will other countries retaliate? (e.g., Eurasian Economic
Union bloc, incl. Kazakhstan, Belarus, Armenia)
Will Russian sourcing be re-localized and parallel value
chains be created with aligned trading partners?
• Re-sourcing of critical materials, parts and equipment• Alternative technology platform• Parallel payments infrastructure and financial system

Note: BCG does not provide legal or regulatory advice; information is non-exhaustive. Source: Government reports; Press clippings; BCG analysis

10Prepared: 31 March 2022

[President Biden] described
the implications andconsequences if China
provides 'material support'
to Russia

Macrofundamentals

RussiaChina

Imports1 ($T)

0.25

2.07

Exports2 ($T)

0.43

2.50

1

19

Share of global banking revenue4

~1%

25%

% of cross-border transaction value5~1.4%~12.0%

~1%

~28%

0

12

.04

.51

# of top 100 banks3White House press release
March 18, 2022
'Material support' could translate
in the application of secondary
sanctions and policy actions,
impacting a larger, more globallyinterlinked economy (e.g., China),
which would put much morepressure on the global
economyFinancialflows

Corporate
activity% Fortune Global 500 revenue6# top 100 tech companies7
R&D spend ($T)8

Note: BCG does not provide legal or regulatory advice; information is non-exhaustive. 1. Total value of 2019 imports (CIF), WITS 2.
Total value of 2019 exports (FOB), WITS 3. Top 100 global banks based on '20 assets, S&P Global Based on '21 revenue per
Fortune 4. In country (domestic) revenue (Retail + corporate + other banking) 5. 2019 data for Russia - based on outbound global
payments only, excl. credit cards; value of Russia x-border payments/ value of x-border global payments BCG Trade Finance
Model. 6. Fortune 2019 7. Thomason Reuters "Top 100 Global Tech Leaders" 8. Gross domestic spending on R&D, OECD Source:
11
BCG Trade Finance Model; WITS; OECD S&P Global; Fortune; China State Administration of Foreign Exchange; BCG analysis

Copyright © 2022 by Boston Consulting Group. All rights reserved.

Hypothetical scenario | If China provided 'material support' to Russia, it could
face implications that would significantly impact the global economy

Prepared: 31 March 2022

AGENDA

Perspective on risk impact
Sanctions and policy actions
Risks for companies
Implications for companies

Copyright © 2022 by Boston Consulting Group. All rights reserved.

War in Ukraine:
Risk Impact

12Prepared: 31 March 2022

Three broad types of risks for companies with potential widespread impact
BCG Risk Practice Taxonomy – Contact for further detail

NON-EXHAUSTIVE – MOST RELEVANT RISKS

Strategic & Reputational

Business & Operational

Financial

Risk to achieve business objectives
over the long-term

Risk to company's operations, including
supply chain and delivery of products/service

Risk of investment losses, business &financial deterioration (e.g., solvency)

Business model viability threats fromlong-term changes in demand patterns

Top line risk driven by shocks to priceand demand

Strategy adjustments imposed by
reputational concerns over conflict

Risk of critical commodities supply
shortages causing business continuity
issues/disruptions and cost increases

Change of strategic priorities with longterm impact (e.g., CO2 targets)Threat to cybersecurity driven by
conflict tensions or boycott attempts

Liquidity risks driven by cash
shortages rooted in business/
operational disruptions
Risk of financial disruption due tostress propagation along own businessnetwork
Uncertain financial markets outlook(e.g., commodities, currency risk, etc.)

Risks are interconnected, reinforcing each other in a highly uncertain context
High uncertainty for companies – Details in next pages
Source: BCG analysis and experience13

Prepared: 31 March 2022

Strategic & Reputational | Business portfolio and long-term strategic
priorities potentially affected by reputational risks
Russian operations not only
a financial concern, but also
a reputational one
BCG Investor Survey1
United States - March 2022
Investor perspectives on companies that
continue operations in Russia

73%

20%
+460

Unwilling to invest incompanies with operations
in Russia

Would invest only if exposure
to Russia is marginal (e.g.,<3% of revenues)
Companies suspending or
scaling down business ties
with Russia2

Direct risks and indirect reputational ramifications for companies
First-order risks

Second- & third-order ramifications

Western consumers & business partners
boycotting companies with Russianpresence

Companies adopting a "no business"
policy with Russia and/or aligned countries
to prevent future reputational issues•

e.g., Renault decided to suspend activities in Russia
after public opinion reacted to its presence3

Investors potentially halting investment ordivesting from companies with Russian
operations•

e.g., Norway’s Sovereign Wealth Fund, with c. $3B
invested in Russian stocks, to exit Russian holdings4

Ties with sanctioned entities/
individuals forcing divestments or businessstrategy shifts•

e.g., Manchester United F.C. cancel their sponsorshipdeal with Russian state-owned airline Aeroflot5

Insecurity of assets and personnel in
Russian territory following suspension ofoperations
Players from non-sanctioning countries may
seize opportunity to gain market sharein Russia, strengthening competitive
position
Disruption to international supply chainsgiven loss of production capacity

1. BCG Investor Perspective Series, pulse check #19; n=150 companies, representing investment firms with +$5T in combined assets under management. 2. Company Announcements re: Russia Market
14
per Yale School of Management tracking (30 March 2022). 3. Renault Press Release & Deutsche Welle; 4. WSJ 5. Daily Mail. Source: BCG analysis and experiencePrepared: 31 March 2022

Operational – Supply Chain | War in Ukraine to create further impacts in an
already stressed supply chain post-COVID context

Companies highly concerned with supply chains

4 key supply chain risks boosted by the war

Companies' sentiment on supply chain risk: proportion ofreferences to supply chain risk per earning call transcript1

Commodity
Difficulty sourcing
shortages
and higher key& pricecommodities prices
volatility

Values Indexed for Jan 2017
900
700

Ukraine conflict on top of an
ongoing global supply chain crisis,
exacerbating companies' concerns
Startof Covid
Pandemic2

Supply chain
crisis due toPandemicinduced
logisticalbottlenecks

500

Start ofUkraineWar

Product
sourcing

Inability to source
manufactured
goods and inputs

Demand2nd order
effects

Slowdown in
manufacturing /inability to import

Logistics

Higher logistics
costs due to capacityand fuel impact~2x

Increase in key
commodities3
prices since
Jan/22

3.5M

Potential fewer
vehiclesproduced in theworld in 20224

7.6%

Russia,Ukraine andBelarus shareof EU imports5

27%

Increase in jet
fuel prices6
month by
month

300
100

COVID
spike
(07/20)01/17 07/17 01/18 07/18 01/19 07/19 01/20 07/20 01/21 07/21 01/22 07/22
1. BCG investor and company sentiment measurement proprietary tool, NL Analytics and BCG Center for Growth and Innovation Analytics. Measured as % of referents to supply chain in context ofrisk per earning call transcript. 2. Estimated – official data of pandemic start could differ among countries. 3. Nickel, Wheat, Crude Oil data Mar/2001 – Mar 7, 2022. 4. IHS Market global vehicles
forecast. 5. IHS for Jan-Dec 2021. 6. IATA: Europe-Asia, Asia-North America most heavily hit by airspace closure, Based on CTKs (cargo ton kilometers) over the past 12 months.
Source: BCG analysis and experience.

15

Prepared: 31 March 2022

Operational – Cybersecurity | Russia possesses leading cyber capabilities,
and evidence of increasing attacks on Ukraine
Russia has outsized cyber capabilities…
Russia has longest-established and strongest cyber-offensive
capabilities, outsized for nation size
Top 5 countries out of 50 with highest Cyber Capability Index - offensive
capability (Harvard Belfer Center1)
67

65

61

59

55

RussiaUS

China

Germany

UK

1.5

20.9

14.7

3.8

2.7

Est. official
1990s
cyber dept3

2010

2015

2017

2020

GDP2 ($T)…and has been alleged to have been behind
destructive4 NotPetya cyber attack in 2017

Evidence of increasing cyberattacks on Ukraine
US & UK accredited Feb 15 cyberattacks on Ukraine's criticalinfrastructure, incl. Defense Ministry & banks4 to Russia~10x

Increase in cyber attacks on Ukraine6

Leaders should consider four key cyber threats,and potential for contagion from original target
Geopolitical

Direct attacks on Ukraine (e.g., defense ministry,banking system) prior to invasion

Retaliatory

Multinationals & Governments anticipate
retaliation for sanctions & aid provisions• UK, US, and AUS attributed attack
to Russia5$10B

Total damage
estimated

Reconnaissance

Allegations of reconnaissance performed
against countries' critical infrastructure• Targeted Ukraine, spreading across
EU & globe, impacting multinationals(e.g., Merck, DHL, etc.)

65+

Countries
impacted

Activism

Attacks from non-state backed groups motivatedby ethical/ moral views

1. Cyber Offense Capability Score 2020 (Harvard Belfer Center). 2. 2020, USD $T, World Bank 3.Official Government Cyber Department responsible for integrating country's cyberspace operations;
RUS: ccdcoe.org; US: cybcercom.mil; China: Jamestown.org; DE: Bundeswehr.de; UK: gov.uk. 4. US: Anne Neuberger, US National Security Advisor, Feb 18, White House; UK NSCC. 5. US: Homeland
Security, CIA, White House; UK: Foreign Office Minister; Australia. 6. Quad9, cybersecurity tool blocked 10x DNS requests coming from UK, KrebsonSecurity Source: BCG analysis, Forbes

16

Prepared: 31 March 2022

Financial | Distress growing but below COVID levels because of a lower direct
systemic impact – uncertainty from second-order risk implications

Increasing financial stress, but below COVID levels
Elevated global financial stress1

Impact varies based on exposureFirst-order risks

Second- & third-order
ramifications

Threat to liquidity buffersfrom hefty margin calls onderivatives and difficult
receivables collection

Solvency issues/default
following sustained liquidity
drains from margin calls
and/or unpaid receivables

0

Increased default risk on
Russian/Ukrainian loans-504/19 07/19 10/19 01/20 04/20 07/20 10/20 01/21 04/21 07/21 10/21 01/22 04/22

Potential for Russia/ Ukraine
sovereign debt default

Propagation of solvency/
credit issues to network offinancially distressed entities(e.g., suppliers)

Global FSI index, Mar 2019 – Mar 2022

10
5>0 indicatesstress levels
above averageIndex incorporates 5 indicators: credit, equity, funding, safe assets & volatility

Deteriorating credit for Russia & Russian entities• Fitch downgraded Russian Sovereign Debt to "C"2 and Ukrainian to "CCC"2• Moody credit agency downgraded at least 95 Russian3 & 3 Ukrainian corporates3

Rising interest rates affecting
banks' balance sheet and top
line, as well as companies refinancing terms

Lower money supply to theeconomy, with potential
effects on production,
consumption andunemployment

1. Global OFR FSI index is a daily market-based snapshot constructed from 33 financial variables incorporating five categories of indicators: credit, equity valuation, funding, safe assets and volatility,
FSI shows stress across US, other advanced economies & emerging markets 2. Fitch Ratings Agency 3. Moody's as of Mar 10 Source: Reuters, Bloomberg, BCG analysis and experiencePrepared: 31 March 2022

AGENDA

Perspective on risk impact
Sanctions and policy actions
Risks for companies
Implications for companies

Copyright © 2022 by Boston Consulting Group. All rights reserved.

War in Ukraine:
Global Update
and Risk Impact

18

Prepared: 31 March 2022

Companies should re-assess their operational and risk environment
to build resilience via scenario-based planning
Short-term

Mid-to-long-term
B

Shift focus from managing the
emergency to re-assessing therisk and sanctions landscape(e.g., new/escalating traderequirements)
Include customers andconnected 3rd parties incompliance screening andrisk assessment

C

Assess stress scenarios,
incorporating direct and indirectrisks along company
vulnerabilities (e.g., risk ofsanction evasion via 3rd parties)
Adopt an agile approach inreviewing decisions andimplementing controls
against potential liabilities

Example in Banking

Example in Manufacturing

Payment network analysis to

Idiosyncratic scenarios to stress supply chain
vulnerability – e.g., loss of suppliers due to
conflict spillovers, risk of sanction evasion via
transshipment, logistics costs disruption

map cash flow interactions within company
network/supply chain and identify indirect
exposure to Russian/Ukrainian entities
Source: BCG experience & analysis

D

E

F

Review and assess
scenarios on an ongoingbasis to address uncertainty
and ensure trade andsanctions compliance
Build a resilience buffer
by identifying and securing
delivery of critical businessservices (e.g., dual sourcing)

Copyright © 2022 by Boston Consulting Group. All rights reserved.

A

19

Prepared: 31 March 2022

Mitigation actions can range from tactical to structural based on urgency orcomplexity
NON-EXHAUSTIVE

Tactical actions• Develop action plan to mitigate immediate
impact on business network (e.g., suppliers)

Sanctions

Current &potential• Verify denied-party screening and CDD1
data collection/storage processes• Verify/Remediate denied-party screening
and CDD1 data quality• Strengthen sanction clauses on existing
commercial agreements, and consider
certification of higher-risk 3rd-parties

Strategic &reputational

Other risks

Business &operational

Financial

Structural actions• Pressure test denied-party screening
and CDD1 process (e.g., larger screening
scope, new screening logics)• Conduct ongoing connected parties
screening• Consider method to detect/prevent
circumvention via trade finance• Include/Develop geo-political dimension inrisk management framework (e.g.,indicators, escalation mechanism)• Implement on-/near-shoring initiatives• Increase inventory of critical inputs/parts• Diversify supply chain (e.g., dual sourcing)• Raise cyber awareness at all org. levels
and increase monitoring frequency• Strengthen priority cyber controls against
typical vectors and invest in cyber resilience• Engage routinely in tabletop exercises/
war-gaming against cyber attacks• Review Incident Response, BusinessContinuity and Disaster Recovery plans• Increase liquidity/cash conversion cycle• Increase capital/equity buffers• Re-assess hedging strategy• Engage in debt restructuring

1. Customer Due Diligence. Source: BCG experience & analysis• Permanently discontinue operations inselect geographies

20

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