Invest in sustainability even if you are not a believer, says Saker Nusseibeh, CEO of the international business of US investment manager Federated Hermes. As society gears up to fight global warming, savvy investors should look at riding consumer trends like renewable energy and electric vehicle (EV), he adds.
“From a moral as well as a financial point of view, the most sensible thing for investors to do is to understand these changes and invest accordingly,” says Nusseibeh. “Even if you disregard all that upset about the environment and you say, ‘My duty is simply to make money’, actually, the environment is the way to make money.”
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In his keynote address at a Sept 16 conference by the Business Families Institute at Singapore Management University, Nusseibeh stressed the threat of climate change to the generational wealth of family businesses.
“Unless we do something today, the world in 30 years will be unstable, it will be dangerous, you will not be able to pass on your wealth or live comfortably. And that is the whole point of investment; the whole point of building businesses is for us to enjoy a better life in the future. Money is just a heuristic. It’s what we use to achieve happiness in our life, stability, comfort; all of these will be jeopardised unless we do something about the environment,” says Nusseibeh.
Nusseibeh terms these threats “systemic collapse”. To illustrate the point, he draws parallels to how mass migration and crop failure doomed the Bronze Age to an abrupt end around 1200 BC.
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Nusseibeh also cites the fall of the Roman Empire from his PhD studies in history at King’s College London. “A typical question that students would debate is whether the barbarians came to enjoy the Roman Empire and not destroy it. The migration of the Germanic tribes did not intend to destroy the Roman Empire; they just wanted more land and more money.”
With these historical events in mind, Nusseibeh warns that climate change could once again force mass migration from the Global South, destabilising political and economic structures. A global average temperature increase of 2.5°C will lead to rising sea levels, which in turn will flood Egypt’s Nile Delta, says Nusseibeh. “The Delta region becomes salinated, the soil becomes salty, that population cannot eat because there’s no food, and that population will migrate.” In three decades, that population is set to number 150 million.
“If migration happens in Europe, as an example, we have seen an indication of what might happen, with the rise of right-wing parties closing global borders and [encouraging] introspection, you have the beginnings of systemic collapse,” he adds.
Faced with urgent recommendations by the Task Force on Climate-Related Financial Disclosures (TCFD) for example, government regulation to meet net-zero carbon emissions goals will increase, says Nusseibeh.
“Governments will realise this is of geopolitical danger, so that’s why they are regulating net-zero. A good investor, even if they do not believe all of this, will want to position themselves well and would ensure that they’re on the right side of the equation,” he adds.
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“There is a danger and a very strong danger that people will become very emotional, driven by a deep sense of morality, and say: ‘There are certain companies I don’t want to invest in’,” says Nusseibeh.
That may make them feel good as an investor, but it does nothing to solve the problem, he adds. “If you simply refuse to own oil companies, the oil companies will not disappear.”
Instead, Federated Hermes believes in investing in these companies and discussing long-term transition plans with board executives as partners. “Why is it successful? Because number one: it’s not adversarial; it is built on partnership and friendship. number two: it’s long-term; the discussion is not about ‘Is your company a good investment for me in the next five minutes, three months, one year?’”
Faced with urgent climate warnings, should we still give such companies the benefit of doubt? Nusseibeh thinks so. “As investors, we have a duty, both to our community and also to the businesses that we own, to actually help them make that change.”
Photos: Bloomberg
