Fruits of peace

Expressed in blunt terms, the argument is that many European countries did not make the necessary investments in military structures and are now being forced to play catch-up.

However, security architecture encompasses much more than just traditional national defence. This article examines matters of social cohesion, security of supply, and other issues that are relevant for a country’s security architecture from the perspective of sustainable investment.

Influence of sustainable investments

At times, the question arises of whether a gap is forming between a sustainable perspective in general – and sustainable investments in particular – and the real world, also when it comes to the financial system. Because responsible investments now have a great deal of importance on the financial markets, the behaviour of sustainable managers is becoming increasingly important for the overall market. One answer can be found in the dynamic development of sustainable investment styles in recent years and decades. In today’s “sustainable investment world”, the fundamental values of ethical investment mentioned above have lost a significant amount of importance in favour of environmental and social issues.

Negative criteria or exclusion criteria that are applied in the course of investment processes today are primarily related to sustainability and are based on ESG factors. Sets of criteria are a way to reduce risks. And reputational risks connected with violations of labour rights and human rights or the risk of lawsuits in connection with controversies or contentious products or services are among the most frequently cited aspects of risk mitigation.

Criteria catalogues have been supplemented with “more modern” approaches to sustainable investment for several decades. The detailed ESG quality analysis of the investment universe – also referred to as the best-in-class approach – is a key topic here, just like active shareholder engagement – including corporate dialogue and the exercise of voting rights – and making an appropriate sustainable impact. Naturally, the latter aspect of impact must also be seen in connection with various investment objectives. Because making an impact can be supported through the application of a criteria catalogue, the implementation of sustainability analysis in the portfolio composition process, and shareholder engagement practices.

The objective of sustainable investment is generally geared towards consciously supporting sustainable topics, and, accordingly, promoting future-proof developments and targeted investment – and is thus potentially not in harmony with the topic of sustainability per se. It’s ultimately about supporting development towards “a world we wish we had”, which does not have to conform to the current structures.

A re-examination of security

The objective described above is often the subject of more or less intense discussions, depending on current events. The war of aggression against Ukraine that began in February is leading to talk of a paradigm shift with regard to the pacifistic attitude of sustainable investors. In general, it seems necessary to rethink the security architecture at the global level. And the close proximity of the conflict makes the topic that much more relevant for the European discourse.

Legal certainty and compliance with international treaties represent key components of a security architecture. Any restriction of ownership rights without legal title must be prevented in order to counteract the rise of anarchistic and often also populist developments. The protection of property is a cornerstone for a prosperous economy in market-based systems, but it is also a key aspect in the discourse surrounding fairness, if one assumes that property was created lawfully. The transition to a fairer world can only take place within structures that are based on the rule of law.

Security of supply

Beyond military-related national defence, the security architecture also serves in the assertion and protection of many interests that are not connected to the military. In a globalised world, a country’s ability to supply its domestic economy with raw materials and input materials is an essential topic. In the case of scarce resources, ensuring this type of security of supply is also a question of the clout of individual nations or groups of countries acting in concert. Economic power and military power play a key role in this context. Exerting political influence on economic agendas has a long tradition, but should not be seen as giving countries carte blanche for national egotism. Protectionist tendencies have also never proven successful in the past.

The vulnerability of our highly networked, international system of trade flows has been demonstrated time and again in the last few years and decades. In the very recent past, the pandemic and the Ukraine crisis have revealed the limits of globalisation, including supply chains that are extremely intertwined with one another. A trend towards maintaining inventories at the lowest possible level and just-in-time production combined with simultaneous profit optimisation by way of location cost optimisation led to an entirely unprecedented degree of vulnerability in globalised production processes.

At the level of the citizens of a country, security is not just associated with the supply of vital products and services but also with how affordable they are. Aspects such as access to clean water, the availability of energy and electricity, and the maintenance of medical infrastructure are tremendously important. In this context, the globalised production of medications also became a major issue in the fight against the worldwide pandemic over the past two years.

Political and social security are among the most valuable goods in a democratic system.

Every kind of social unrest and social division must be prevented. The discussion surrounding mandatory vaccination demonstrated how quickly social consensus can be lost. The goal of social justice is connected with a discourse regarding the redistribution of wealth. The current high inflation rate is leading to fierce debates surrounding price increases for a wide range of products and services. The affordability of everyday goods and services is becoming increasingly precarious for certain segments of the population. Political decision makers have to avoid turning to overly simple, populist answers to complex questions.

A functioning security architecture is unimaginable without protection against cyberattacks and the misuse of data. The importance of cybersecurity is illustrated time and time again by attacks originating from and aimed at the Internet. Giant tech companies collect massive amounts of private data, which alarms data protection activists. Then there is the security of the truthfulness of the content provided by information services. It is getting more and more difficult to differentiate between information and disinformation, and objective reporting in the media is becoming a rare commodity.

International regimes

International regimes are a central component for lasting peace and increasing global prosperity. They offer a framework for the resolution of conflicts and the reconciliation of interests. Here are a few relevant examples:

• International trade (e.g. World Trade Organization, covers roughly 98% of global trade)

• Regime for labour and social standards (e.g. International Labour Organization protocols)

• Environmental regimes (e.g. Paris Agreement as a binding climate protection agreement according to international law, United Nations Convention on the Law of the Sea, which is designed to regulate all marine and maritime activities)

• Disarmament and arms control (e.g. Missile Technology Control Regime)

• Human rights regime of the United Nations (e.g. Universal Declaration of Human Rights, UN Convention on the Rights of the Child, Geneva Convention Relating to the Status of Refugees)

Wolfgang Pinner
Head of Corporate Responsibility Raiffeisen Kapitalanlage GmbH