Food, fuel, and geopolitical ESG 

John Chatfeild-Roberts, co-Head of Strategy, Independent Funds, gives his assessment on the war in Ukraine and discusses the investment implications for the security and cost of food and fuel, as well as how investors are reconsidering their geopolitical ESG preferences. 

It is often said when a war starts the first casualty is the truth, so none of us can really know what is happening on the ground in Ukraine. Yet with peace talks no longer taking place, it seems inevitable that fighting will continue for quite some time yet. In broad terms, the three outcomes I think are possible are, a victory for Russia, a defeat for Russia, or a prolonged stalemate.


The first of these seems the least probable, although that does depend on what Putin’s real objectives actually are. Before the war started many people, me included, thought that Putin wouldn’t invade. It seemed completely irrational, yet of course that’s what he did. Obviously, we’re dealing with a mind that thinks in a different way to us. Perhaps he’ll be satisfied with a chunk of eastern Ukraine? But given the slow progress so far – due to a combination of Russian military incompetence, Ukrainian bravery, and support from NATO – it seems entirely plausible that there could be a bloody stand-off for many years, as was seen in the 1980’s Iran-Iraq war.


The prospect of defeat for Russia seemed almost unthinkable in the early days of the war, but is now being talked about quite seriously. Again, what that defeat might look like is open to interpretation (returning to the status quo of 2021, or of 2013 prior to the Crimean annexation?), but any sort of defeat for Russia raises questions about its impact on the Kremlin leadership. If anything could weaken Putin’s iron grip on power and embolden rivals behind the scenes, then perhaps it is that.

As global multi-asset investors, we in the Jupiter Merlin team think about the impact of the war in terms of food availability, energy security and what might be termed ‘geopolitical ESG’ or moral investing. The removal of much of the production of both Ukraine and Russia from global agricultural markets this year will trigger further food price inflation in the developed world and famines in parts of the developing world. The social and political implications of this will be far reaching.


On the subject of hydrocarbons and the path to net zero, our civilisation simply couldn’t survive if we abandoned oil/gas/coal tomorrow. Building the infrastructure to support a low-carbon energy global economy will, even with a lot of money and urgency, still take decades. Yet for many years the political climate has stifled hydrocarbon investment in many areas of the world, with potentially catastrophic knock-on effects, now unfolding, on the marginal supply of the energy upon which we are still utterly reliant.


At a macro level, one of the impacts of this war is that investors are re-assessing in which parts of the world they feel comfortable investing. Russia itself is off limits for the foreseeable future, but there is also a question about whether to continue investing in China, for example. The issue is not black and white but shades of grey. Avoiding direct exposure to China is one thing, but removing any economic exposure at all to China is a different thing entirely. To give one example, Apple is obviously US-listed but both manufactures, and also sells, many of its products in mainland China; there are plenty of companies in a similar situation.


As with so much in investment, this is a judgement call. A willingness to be flexible is probably valuable. My experience of markets has taught me that any given situation can change pretty quickly, so I always stress that I reserve the right to change my mind at the drop of a hat!

The value of active minds: independent thinking

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