The future of governance, geopolitics and cybersecurity

Jens Peers, CIO of Mirova US and portfolio manager of the Mirova Global Sustainable Equity strategy, discusses the importance of the governance transition. Governance is one of the four megatrends—long-term structural changes to the world—which the strategy focuses on. Though seemingly a niche theme, it intersects with geopolitics, creating both challenges and opportunities. He highlights investable themes such as cybersecurity in the context of geopolitical tensions, the move towards local economies and resilient supply chains. 

You describe your global equity investing strategy as multi-thematic. Can you briefly tell us about these four trends?

Jens Peers (JP): Through our thematic analysis we identify and assess the long-term trends that are shaping our world and global economies across four major transitions: demographics, technology, environment and governance. At a high level, we define the governance transition as the collection of long-term trends impacting how global economies are organised, including shifting geopolitics, rethinking of globalisation and global supply chain dynamics.

And roughly what percentage of your portfolio is invested in governance? Do you have set limits or targets?

JP: We don't really have set targets. We create the portfolio from the bottom up, based on stock opportunities and valuation opportunities. From that perspective, governance and cultural transitions make up just over 5% today.

Whilst this may seem a small percentage, it has to be said that some companies obviously contribute to and benefit from multiple trends. For instance, improving diversity is a very important part of the governance trend. Companies like NVIDIA, which we primarily invest in as part of the technological transition towards a world with more AI applications, have also come on our radar because of their strong diversity policies. A lot of these companies play multiple themes at the same time.

Governance sounds like a very dry investment theme, but it ties into global geopolitics, which is a fascinating, volatile, and dynamic area right now. Such a high level of change must be creating investment opportunities, but it must also be a difficult area to predict. What are the long-term thematics tied to these changes that you think are the most certain and therefore most investable?

JP:  A difficult topic from a sustainability point of view could be defence, because it's not just about how geopolitics are positively impacting our role—there's a lot of war risk in the world as well. A lot of debate is happening, specifically in Europe, around defence. Even for us as sustainable investors, there are a few opportunities for companies that are active in this space, specifically in cybersecurity. We've seen just recently that a lot of airports around the world were closed because of a cyber-attack—so investing in cybersecurity is an area of huge opportunity.

Another aspect of geopolitical tensions is that we're moving away from a globalised world to a focus on the local economy and reshoring or friendshoring. There are also opportunities related to redesigning supply chains to bring them more local, including transportation. So energy, water, and all those areas are key, but also companies that help smaller local companies grow their business, through software that assist them with local taxes, tariffs etc. Companies like Shopify and others that help in this way also fit within this theme.

Donald Trump recently announced that he'd like to do away with regulations requiring US companies to disclose their financials every quarter. This is the latest in a string of announcements to reduce the regulatory burden on companies, but which also appears to be giving more power to company management and away from shareholders. What do you think of the idea of getting rid of quarterly reporting and these latest changes to governance for US companies?

JP: Like with any politician, or any President, I agree and disagree with a few of their points. Now this is one where I tend to agree a little bit more.

On one hand, that probably means a little bit less immediate information available for us as investors. On the other, because of this quarterly publication pressure, there's a lot more short-termism both with investors and companies alike. I think moving away from this quarterly pressure would only be a good thing for long-term investors. It would also help CEOs and CFOs of these companies to be more active within the company and not always have to deal with roadshows and investor calls on such a frequent basis. All in all, I think there will be some negatives related to that, but it's not necessarily a bad thing.