Which of Your Holdings Are Exposed to Conflict Risk?
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Geopolitical risk has shifted from a series of shocks investors might ride out to a structural feature of the portfolio. Conflict now runs through supply chains, sovereign exposure, commodity prices and the operations of companies working within or across contested borders. For an institutional investor, knowing which holdings are exposed to conflict-affected areas, and whether that exposure can be seen clearly enough to act on, is essential.
Anchored in international frameworks
Impact Cubed's Armed Conflict Risk Exposure (ACRE) framework classifies countries against recognised international conflict identifiers. The classification is rules-based rather than opinion-based: a country's tier follows from defined triggers maintained by international bodies, not from a house view.
A country is classified Red when it meets one or more of three authoritative, UN-anchored triggers:
Inclusion on the UN Children and Armed Conflict (CAAC) Annex, which names state and non-state parties responsible for grave violations against children;
Binding provisional measures issued by the International Court of Justice in alleged genocide or comparable grave-breach cases;
Active UN Security Council sanctions or arms embargoes.
Amber provides a forward-looking classification, identifying countries at elevated risk of meeting the Red criteria before formal validation occurs, so that exposure is visible ahead of the event rather than after it. Amber is a precautionary signal, subordinate to the formal Red triggers.
Because the classification maps to frameworks that recognised international bodies already maintain, ACRE carries its own neutrality.
Impact Cubed does not decide what constitutes a conflict zone; we map to the frameworks that do.
A flag, not a verdict
Within our Controversies dataset, the conflict-zone indicator applies this classification to controversy events linked to a Red or Amber country. It records that a company has a controversy connected to a conflict-affected country; it does not judge whether that is acceptable. That judgement belongs to the investor, the mandate and the beneficiaries whose capital is at stake.
The indicator is designed accordingly:
Binary and auditable. Each event linked to a Red or Amber country carries a simple flagged/not-flagged status that any user can trace back to its trigger.
Score-agnostic. The flag sits alongside the controversy assessment; it does not alter the underlying controversy score.
Forward-looking. Red captures conflict that international bodies have already recognised while Amber surfaces elevated risk ahead of time.
Portfolio-ready. The flag aggregates to the share of portfolio weight held in flagged issuers, providing a figure suitable for an investment committee.
Red and Amber invite different responses. A Red flag is a confirmed conflict link to weigh against the mandate now; an Amber flag is an early-warning item to monitor before deciding whether to act.
A worked example: Caterpillar Inc.
Caterpillar carries the conflict-zone flag on six of its thirty-four recorded controversies with events taking place in Red-classified Israel, Palestine and Lebanon. The most significant, themed under Human Rights, Health and Safety, is recorded as ongoing and relates to the alleged use of the company's equipment by the Israel Defence Forces in the Occupied Palestinian Territory. Crucially: neither ACRE nor our Controversies dataset adjudicates those reports; we simply record that Caterpillar has events linked to Red-classified countries and ensure that exposure is visible and auditable.
This is also where a single flag segues into wider context. The same conduct, assessed against the UN Global Compact and the OECD Guidelines for Multinational Enterprises, is what constitutes a norms violation, which Impact Cubed surfaces in turn through its Social and Values & Ethics datasets. Not every controversy ends in a norms violation, and not every conflict-exposed holding is bound for an exclusion list. But when a company is on that path, the escalation is observable at each stage: conflict exposure and active controversy are the early signals, the formal violation is where they might lead.
What happens next still belongs to the investor. Some mandates will screen the holding out, others will engage, others will judge the exposure immaterial to their thesis. What no investor wants is to learn of it only once it reaches an external exclusion list, a regulator's file or the press.
Sustained controversy of this kind can also weigh on a holding over time, through divestment pressure, reputational cost or operational disruption in the affected region. By exposing the risk early, it can be managed and mitigated appropriately.
Where this fits
Much market commentary on conflict risk stays at the level of principle: investors should map exposure, triangulate sources, demand traceable data. ACRE is what that principle looks like once it is built: a defined rule, anchored in recognised frameworks, applied consistently, and within our Controversies dataset, delivered as a flag any user can check.
It also comes from a particular vantage point. Impact Cubed is a data and index designer, not an asset manager. It holds no positions to defend when it flags a company, and as a member of the Euroclear group its infrastructure sits alongside the market rather than inside a competing book. When Impact Cubed surfaces an exposure, no house view rides on the answer.
Geopolitical complexity will not resolve itself. The investors best placed to navigate it are those who can see clearly what they hold, trace how they know it, and apply their own judgement with confidence.
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