INVESTMENTS
Liquidity is affecting Russian , Ukrainian and Belarusian instruments , and we have implemented enhanced capabilities to track how risk characteristics are evolving . We also remain alert to the possibility of further financial sanctions , and second-order effects of existing sanctions that raise technical questions , for example , about coupon or dividend payments . Simultaneously , we are engaging with companies to understand their risk exposure to Russia , Belarus and Ukraine through their operations and supply chains . We are also encouraging investee companies that are able to support those most affected by the war , through their products , services and operations , to do so where possible . Finally , we are watching how the application of sanctions may affect governance structures in the months ahead and how companies may seek to alter their ownership models , and the reasons for this – whether for ethical motives and / or access to capital .
ESG and defence spending Another issue highlighted by the war is weapons investing . Many funds exclude areas such as tobacco and controversial weapons manufacturers in line with specific values . Recent events , however , have sparked a debate about the eligibility of defence spending to be classified as a sustainable economic activity . If conventional weapons used for defence are moved off restricted lists , it is not a given that they would be included in ESG funds . Moreover , it is unlikely they will be included in international and national green or social taxonomies that underpin ESG fund classification . Whatever the outcome of the debate , asset managers are likely to continue working closely with clients to determine whether any kind of allocation is appropriate or if there are limits on the scope for ESG investment in this area .
Getting to net zero The energy transition is back in the spotlight . Just months on from COP26 , at which many countries agreed to increase their Nationally Determined Contributions to cutting global emissions , Europe and other countries are scrambling for alternative sources of fossil fuels in an attempt to reduce their dependency on Russia . Majors like BP and Shell have withdrawn from their Russian assets , while European countries that had previously been shutting coal plants are having to reopen them again . Western governments are asking OPEC countries to pump more oil and gas to help stabilise prices and prevent recession . Many populations already face much higher prices and governments are seeking to protect the most vulnerable . In the short term , therefore , emissions will rise . Longer term , however , the case for switching to renewable sources to improve energy security has only increased . It has become imperative for E , S and G reasons to move away from gas and oil . That said , governments will need to balance the drive towards net zero with the need for secure and reliable energy supply . The implications of this will be an expanded role for nuclear , more short-term investment in fossil fuels , swifter deployment of existing technologies such as wind and solar , greater focus on the long-term viability of supply chains , and a ramping up of the technological development required to tackle the intermittency of renewables . Companies whose activities relate to hydrogen production and battery storage have begun to attract greater attention as a result . However , the path to net zero will not be easy , despite higher fuel prices making renewables more competitive .
Cyber security threat Before the physical war began in Ukraine , an often-hidden cyber war was being waged . Now governments and companies are warning citizens and staff to be on much higher alert for digital attacks , and we expect greater focus and investment in cyber security in the months ahead . We regularly engage with companies on their internet security , but estimates suggest only 25 % of corporations have adequate cyber protection . 2 This is despite an increasing number of transactions and sensitive information being stored online , a trend set to continue with developments such as the Internet of Things . As a result , we think this is an area to watch , as the theft of data , the shutting down of vital services and travel disruption are all possible threats to society as well as individual companies , suppliers and customers .
Adapting to an uncertain world ESG issues were broad and often complex to manage before the war , but its arrival has brought often conflicting social and ethical considerations into sharp relief . Faced with this kind of shifting complexity , many ESG approaches may struggle to capture both the different order effects of different issues , how they interact with one another and how fast they can change . For investors , granular sector expertise and strong relationships with corporates coupled with macro insights and a double materiality lens ( the impact a company has on its environment and vice versa ) can help , if not to see round corners , at least to be as prepared as possible for the dilemmas that may lie ahead .
1
Source : Over 450 Companies Have Withdrawn from Russia — But Some Remain | Yale School of Management
2
Source : https :// www . bain . com / industry-expertise / technology / cybersecurity /
Important information
This information is for investment professionals only and should not be relied upon by private investors . Past performance is not a reliable indicator of future returns . Investors should note that the views expressed may no longer be current and may have already been acted upon . Changes in currency exchange rates may affect the value of investments in overseas markets . Investments in emerging markets can be more volatile than in other more developed markets . A focus on securities of companies which maintain strong environmental , social and governance (“ ESG ”) credentials may result in a return that at times compares unfavourably to similar products without such focus . No representation nor warranty is made with respect to the fairness , accuracy or completeness of such credentials . The status of a security ’ s ESG credentials can change over time . Issued by Financial Administration Services Limited and FIL Pensions Management , authorised and regulated by the Financial Conduct Authority . Fidelity , Fidelity International , the Fidelity International logo and F symbol are trademarks of FIL Limited .
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