Operating in a world of growing investment controls

Choosing where to invest and seek funding are among the most fundamental decisions business leaders make. Recent geopolitical shifts are complicating the analysis, however. Across the globe, governments are increasingly regulating investment flows into and out of their territories and industries. While countries have long applied constraints on inbound foreign direct investment (FDI) to advance their economic and national security interests, the use of investment laws has increased significantly and governments are now starting to regulate outbound investment as well. Earlier this year, the United States implemented controls on how US citizens can invest in other countries, and the European Union has announced plans to develop similar rules.  Understanding the scope of FDI restrictions can help prevent surprises.

To navigate this complex landscape, business leaders need an approach for assessing investments in areas that may have unclear or conflicting rules or may be subject to new restrictions as geopolitical trends shift. Mapping how evolving investment rules might affect competitive dynamics can help leaders avoid strategic mistakes—as well as identify new business opportunities.

As geopolitical competition heats up, investment controls have emerged as a prominent tool—alongside export controls, tariffs, industrial incentives, and other trade-related measures—that governments are using to advance economic prosperity and protect national security. Through investment restrictions, governments can prevent foreign companies from gaining control of sensitive industries or infrastructure, protect access to critical resources, and preserve strategic advantage in select sectors. Conversely, they may relax investment rules to create incentives for multinational corporations and investment institutions to inject funds into their economies.  In addition to the expansion of investment controls to new geographies, the scope of the rules is growing.

Three trends in particular are reshaping the global investment screening landscape:  Tightening and increasingly complex restrictions.  Growing extraterritorial reach of controls.  And heightened risks associated with sources of capital.

Decision-makers planning investments in foreign jurisdictions or with foreign funding should consider four actions to minimize risks and maximize opportunities. Track geopolitical shifts that may affect investment rules.  Focus on strategic risk alongside regulatory compliance.  Assess your investments’ regulatory risk exposure.  And understand the implications of capital controls.

By integrating these considerations into their strategic plans, investors can better navigate the complex regulatory landscape and make informed decisions that align with both their business objectives and compliance obligations.

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