On February 24, 2022, what many considered unthinkable became a reality: Russia launched a full-scale invasion of Ukraine. As a Russian-Ukrainian-Jewish American, I was horrified and saddened, but not completely surprised. The gravity hit me immediately. Had my family and I not immigrated from Ukraine to the United States in the 1990s, we would have woken up that day to a war zone.

As of March 10, over two million Ukrainians—mostly women and children—have fled their home country to seek safety. Hundreds of civilians have died as apartment buildings, hospitals, and even Holocaust memorial sites were bombed. Evacuation corridors collapsed as civilians ran for their lives. The shelling of civilians in broad daylight is an affront to Eventide’s (and my own) core ideals of respecting the value and freedom of all people and demonstrating a concern for justice and peace. This is a humanitarian disaster.

Western countries are responding to Russia’s act of aggression by leveraging sanctions to cripple Russia’s economy. The pipes carrying capital into and out of Russia are starting to run dry. At the same time, global businesses, particularly those with ties to Russian oligarchs and the Kremlin, are facing a moment of reckoning. To what extent did they enable the Russian government to pursue its agenda in Ukraine? To what extent did countries and companies alike turn a blind eye to the risks of engaging with a regime ranked the lowest in Europe for corruption?

How can investors wrap their minds around the risk of the unthinkable coming true, when it is just that—too unlikely to be even considered a possibility? And equally important, how can investors manage that risk?

At Eventide, we seek to identify and manage the risk of the unthinkable because avoiding harm, and in turn promoting human flourishing, is core to our mission. We strive to support businesses that create a more secure and equitable future and not those that directly or indirectly fuel corrupt regimes or promote violence. The crisis in Ukraine has reinforced for me how important it is to incorporate values into our investing approach, three elements of which are increasingly relevant in a geopolitically uncertain world.

1. Thinking long term and leading with values

Investments have real effects on real people’s lives, so it is imperative to keep values front and center in the research process. For example, Eventide strives to find management teams and companies that can grow responsibly and sustainably over the long term. We ask ourselves, “Do the company’s products and services solve a real societal need? Do they add value to society?” 

Then we seek to understand if the company delivers its products and services in an ethical way. When assessing management teams, we look for red flags going back years that could include bankruptcies, court cases, and fines. We screen for political exposure and connections to sanctioned countries. We speak with former colleagues, suppliers, or customers to assess character. 

We map out the company’s customers and suppliers not only to assess their resiliency and reliability through economic cycles, but also to identify any potential labor or environmental controversies. For example, mapping out the solar panel supply chain unearthed forced labor practices targeting Uyghur people in the Xinjiang Province in China. As a result of these findings, Eventide sought to engage with publicly-traded companies to address forced labor in their global supply chains.     

Often, engaging with portfolio companies can be a powerful way for long-term-oriented, values-based investors—individually or as a coalition—to effect change. However, sometimes, companies with strong ties to countries with pervasive corruption or weak labor laws or inadequate environmental protection laws may not be worth pursuing if the values alignment is not there to begin with. This debate seems to have only intensified. 

2. Supporting the transition to a secure and clean energy future1

We look to invest in companies that can provide global energy resiliency to power human flourishing. Like many values-based investors, we are trying to think holistically about how to enable a smooth transition to a clean energy future, including the role of natural gas as a bridge.

The Russia-Ukraine crisis has underscored how disruptive geopolitical conflicts can be to energy markets. This has accelerated the global search for energy security and resiliency. The United States and OPEC nations will be called upon to fill the gaps in supply as the market for Russia’s energy shrinks in the West. In 2020, Europe received 40% of its natural gas and 27% of its oil from Russia. We expect U.S. oil and gas production to slowly increase to meet the demand from Europe and other nations now urgently seeking to reduce dependence on Russia. Russia is not only a risky supplier, but it is also using its energy revenues to fund war efforts. The U.S., now the world’s largest LNG (liquified natural gas) exporting nation, should see a boom for years, maybe decades, as customers in Europe and Asia seek more reliable and cleaner energy sources. 

At the same time, renewable energy is also set to get a boost, especially in Europe. Increasing the use of wind and solar power to replace the use of natural gas for electricity production will directly reduce the need to import gas from Russia.

3. Recognizing the need for agile and complex cybersecurity solutions2

One of the ways values-based investors can help make the world a safer place for individuals, businesses, countries, and investors alike is by investing in innovative cybersecurity solutions providers. The surge in cyberattacks leading up to the invasion of Ukraine has reinforced the reality that we need these solutions more than ever. 

Over the past decade, global cyberwarfare attacks increased 440%, with 30% originating in China or Russia. There is evidence to suggest that in 2021, 74% of money made through ransomware attacks went to Russia-linked hackers. Just in February, a cyberattack by an unknown attacker on a Toyota supplier caused Toyota to shut down all 14 of its plants in Japan for a day. Hackers also targeted LNG producers on the eve of the Russian invasion of Ukraine. What’s at stake ranges from leaked consumer financial data to large-scale disruption to the electric grid.

A perfect storm is brewing. The number of ever-more-sophisticated attackers is growing as vectors of attack and attack surfaces have increased with the proliferation of digital devices and accounts. The frequency and cost associated with cyberattacks are up exponentially. At the same time, there are not enough cybersecurity personnel to manage all of this complexity manually. More automation is needed. As the number of vectors increase, we are likely going to see a consolidation of vendors offering more point solutions that can talk to each other. More importantly, companies with holistic platforms will likely be best positioned to serve their customers’ cybersecurity needs.2

It’s Time for Investors to Lean into Their Values

The Russian invasion of Ukraine has yielded a devastating humanitarian crisis and thrust the world into a more uncertain future just as it was finding its footing on the heels of the COVID-19 pandemic. We are wading into new waters marked by shifting geopolitical dynamics and upended supply chains. This is an opportunity for investors to lean into their values, to open their eyes to the second and third-order effects of their investments on real people’s lives, and to help make the world a safer and more just place for us all.

 

 

References

Notes

  1. I am grateful to my colleague, Reggie Smith, for his thoughts on the possible energy market fallout caused by this current conflict.
  2. I am indebted to my colleague, Anant Goel, for his helpful insights in this section.