Following Russia’s attack on Ukraine, the risks of a nuclear conflict have grow to be clearer each inside and outdoors the financial world. Still, many market watchers have simply thrown their hands within the air, mistakenly assuming that nothing they do will matter in relation to nuclear weapons. Such a philosophy is insufficient in several ways.
First, a “limited” nuclear exchange or perhaps a single detonation, while catastrophic and almost actually fatal to hundreds if not thousands and thousands of individuals, wouldn’t wipe out life on Earth. People will still care deeply about their jobs, their savings and their investment portfolios. When the pandemic hit, our financial worries didn’t go away, despite the terrible toll COVID-19 took. Our financial stability was still necessary then, just as it will be after a nuclear conflict.
While investing based on nuclear risks may look like a idiot’s errand within the short term, implementing the obligatory risk controls in various market environments is actually not a walk within the park. Adequate diversification, monitoring the financial resilience of counterparties, limiting leverage and maintaining a comparatively long maturity of liabilities adjusted to assets are necessary and logical steps of any risk mitigation strategy.
But there’s a way more pressing reason to extend our focus specifically on nuclear risk: whether it’s a regional or global nuclear exchange between current or future nuclear states or non-state actors, we must reduce the likelihood of such an event in the long run first place.
Sustainability features also play a job. The UN, in any case Sustainable Development Goals (SDGs) are the north star of sustainable investing. Reducing nuclear risks is implicit in Goal 16. “Peace, justice and strong institutions.“In fact, nuclear war, like climate change, poses an existential threat that could prevent us from ever achieving an SDG goal.” Even investors who don’t give attention to sustainability understand why avoiding nuclear conflict of their long-term Self-interest lies.
Of course, diplomacy are the federal government’s responsibility, right? That could also be true, but just as governments lacked the foresight to forestall the COVID-19 pandemic and were often indecisive of their response, they can not be relied upon alone to forestall a nuclear conflict or manage its consequences.
So what should investors do?
Given the war in Ukraine, many financial institutions, particularly in Europe, are reconsidering negative screenings against defense contractors. This development is a great thing: blanket exclusions and divestments are excessively blunt instruments in any sector, and defense isn’t any exception. There will at all times be enough bad guys on the earth, and an efficient defense industry can provide each protection and deterrence.
Additionally, engagement is preferable to disinvestment in relation to creating change. This applies to defense firms or any company involved within the production of nuclear weapons or associated delivery systems or otherwise contributes to the chance of nuclear conflict.
What might engagement seem like? This could mean, for instance, greater scrutiny of a defense contractor’s lobbying efforts or potential conflicts of interest between board members. Because the defense sector shouldn’t be the one source of nuclear risk, we must always also monitor firms in other industries on a variety of issues and work with them to handle any shortcomings. Possible considerations include:
- Industrial and manufacturing firms: How do they ensure compliance with sanctions regimes and limit the potential for export or diversion of dual-use technologies that could possibly be a part of a nuclear supply chain?
- Shipping firms and port operators: Do they implement sanctions and comply with export controls? Do they use nuclear detection technology?
- Utilities: Are they complying with cybersecurity regulations and best practices for nuclear and terrorism threats? Are their systems air-gapped?
- Banks: What type of anti-proliferation financing measures are there? Do they understand which technologies or products of their customers can have a dual-use component?
- Big Tech: How do they limit the export of certain 3D printing technologies and other products that would contribute to nuclear risk? What are they doing to detect and expose deepfakes and other divisive material that would spark geopolitical conflict?
- Social Media: What security protocols are in place to guard the non-public accounts of presidency officials and other influential figures? How do they contain the spread of inflammatory propaganda?
The extent to which an organization’s business contributes to a possible nuclear conflict shouldn’t be the one consideration. We need to take a look at what firms are doing to proactively reduce the risks of nuclear conflict. Which media firms produce content that highlights nuclear risks? How are firms working to bridge the gap between hostile nations and populations? Such aspects needs to be included in our calculations.
The exact risks and sectors we must always search for could also be up for debate. But we’ve to have this debate today. It is time for investors, firms, accounting standards bodies, environmental, social and governance (ESG) assessors, NGOs and governments, amongst others, to start out this discussion.
If not now, when?
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