Risk and Resilience Defined

Today’s investors operate in a world defined by overlapping shocks: geopolitical conflict, economic volatility, technological disruption, and accelerating climate impacts. In this environment, distinguishing between stable and fragile markets can be increasingly challenging.

The Global Investment Risk and Resilience Index — a joint effort between AlphaGeo and Henley & Partners — was developed to help investors, corporates, and governments tackle this challenge by providing a balanced assessment of a country’s stability as an investment destination. The index evaluates country performance across two complementary dimensions:

• Risk: Exposures and vulnerabilities that could undermine investment performance.
• Resilience: The ability to absorb shocks, adapt to change, and safeguard investments.

By combining a country’s score in each of these pillars into a single performance score, the index highlights not only where risks exist but also where strong resilience offsets those risks. It offers investors a tool for capital allocation and helps governments benchmark and strengthen their attractiveness as destinations for foreign investment.

Why Risk and Resilience?

The index is inspired by AlphaGeo’s flagship Climate Risk and Resilience Index, which pioneered the two-pronged approach that measures both the probability of climate-related hazards (risk) and the adaptive capacity of local systems (resilience).

Applied to global investment conditions, this framework ensures that exposure and preparedness are treated as distinct yet equally important factors, introducing comparative nuance often missing from conventional rankings. High risk is not always negative if matched by strong resilience, and high resilience can obscure emerging vulnerabilities, especially in advanced economies now facing political or fiscal pressures.

For investors, the index reduces uncertainty by showing both how much danger a country faces and how well prepared it is to confront challenges while capitalizing on strengths. For governments, it identifies areas where policy action can enhance adaptive capacity against risks and attract long-term capital.

Measuring Risk and Resilience

Risk Indicators

The Risk score comprises factors that represent a threat to investment or corporate returns:

• Inflation Risk: Inflation risk is measured as a combination of inflation rate (annual deviation in consumer price index from a 2% target rate), as well as inflation volatility (five-year standard deviation of the annual change in Consumer Price Index). High or persistent inflation erodes returns, while volatility undermines investment certainty.
• Currency Volatility: For foreign investors, high currency volatility introduces significant exchange rate risks and uncertainty.
• Political Instability: Political instability raises policy unpredictability and risks of conflict.
• Legal and Regulatory Risk: Weak rule of law and poor regulatory quality increase transaction costs, expropriation risk, and other barriers to doing business.
• Physical Climate Risk: Physical climate hazards such as floods, droughts, wildfires, and heat stress directly damage assets, disrupt business operations, and increase costs.

Resilience Indicators

The Resilience score reflects a country’s capacity to manage these risks and other exogenous shocks (for example, global recessions, pandemics):

• External Accounts: A balanced or surplus current account provides buffers; persistent deficits can constrain policy space.
• Fiscal Policy Space: A lower debt burden provides a government with greater fiscal policy space to implement recovery efforts.
• Economic Complexity: Diverse, sophisticated production structures allow economies to adapt and reallocate resources when shocks hit.
• Innovation: Innovative economies pivot or adapt more quickly in response to shocks.
• Investment: Capital formation reflects the extent to which economies are building productive buffers.
• Quality of Governance: Effective, transparent institutions enhance crisis management and long-term policy stability.
• Social Progress: Strong health, education, and equality outcomes foster social cohesion and adaptive human capital.
• Climate Resilience: Hazard-specific adaptation measures (for example, flood defenses, urban greenery) reduce vulnerability and safeguard assets against climate shocks.

Index Limitations

While we have sought to build a comprehensive, balanced index grounded in reliable data, there are inherent limitations that should inform interpretation:

Index Sensitivities and Clustering

Many countries are separated by very small score differences. Country ranks should therefore be interpreted alongside their relative scores and categories, rather than as absolute distinctions.

Country-Specific Nuances

National circumstances do not always align neatly with standardized global data. Singapore’s debt-to-GDP ratio illustrates this challenge: Singapore’s gross government debt-to-GDP ratio is among the highest in the world, which would imply very limited fiscal space. In reality, Singapore has no net debt owing to its substantial financial assets and, unlike most countries, does not borrow to fund recurrent spending. In this case, we were able to manually adjust Singapore’s Fiscal Policy Space score to accurately reflect its fiscal strength (as detailed in our methodological notes). However, it is not feasible to capture every such nuance for every country. Scores should therefore always be interpreted in light of specific national contexts.

Metric-Specific Nuances

Indicators themselves can also be context dependent. For instance, low capital formation may signal underinvestment, but in highly developed economies with mature infrastructure it is less concerning. Similarly, a current account surplus can strengthen resilience by providing buffers but may also reflect weak domestic demand.

The full methodology is available here. As this is a new index, we welcome constructive feedback to help refine and strengthen it in future editions.