Securing assets in a destabilizing world

The geopolitical, economic and political uncertainties in which governments and companies are constantly immersed are catalysts for the search for security. 

Hackers, experts in cybersecurity – and a former French Prime Minister – came together during the ‘Safety Symposium’, organized by Thematics AM in June 2024 at the George V Hotel in Paris. The panel debated several key questions, three of which are summarised below:

1. Is the world becoming more unsafe?

"We're in a fog, and it's getting thicker," said Dominique de Villepin, who was French Prime Minister between 2005 and 2007. 

He explained how war is back on Europe's doorstep and in Gaza, while democracy and free trade are in retreat around the world, and how this was not quite how things were meant to turn out when the academic Francis Fukuyama proclaimed ‘the end of history’ after the fall of the USSR. 

Moreover, international trade is slowing down. "The nature of globalization has changed since the early 2000s", said de Villepin, without knowing for the moment whether it will evolve towards de-globalization or re-globalization. 

Governments must learn to cope with this nebulous environment, rich in surprises, and anticipate the risks they pose to the world. Who could have predicted the war in Ukraine, and the subsequent rapprochement between China and Russia that was considered unthinkable just a few years ago? 

According to de Villepin, the world is going through four major ruptures – geopolitics, war, technology, globalization – that are changing the balance of power between nations and zones of influence. With protectionism on the rise, multilateralism in crisis, globalization fragmented, and wars changing strategic alliances, governments are seeking security above all else. 

He pinpointed the pandemic and the war in Ukraine as having accelerated the desire of governments, particularly in Europe, to break free from certain dependencies, by securing their supplies (energy, gas, masks, minerals, medicines, vaccines, and so on) and rethinking their alliances. It’s why investors in search of security have been flocking to the US, where the subsidies promised by the Inflation Reduction Act have been a powerful magnet for green investments.

This quest for security has also led to a reinforcement of the bi-polarization of the world – between the Western democracies on the one hand, and the heterogeneous group of countries of the Global South on the other, which in just a few years has gone from non-alignment to multi-alignment. As de Villepin put it, the other side of the coin is the return of competition between two systems: "Everywhere in the world, we are being asked to choose our side,” he said. “Ideology is back".

2. Does AI threaten or enhance cybersecurity? 

$8 trillion – that's the estimated cost of cybercrime worldwide in 2023, according to Statista . To put that figure into context, it is larger than the national economies of all but two countries – the US and China.

A cyberattack can damage a company’s reputation, result in loss of operations and sales, require rebuilding of the information system, or a long and costly return to service of a plant. Jean-Marie Letort, Director of Microsoft France's cybersecurity division, revealed how the French manufacturing company Saint-Gobain suffered an attack in 2017 with losses estimated at more than €200 million. These kinds of attacks can happen at any moment.

Solutions exist to protect against them but they come at a cost. According to Letort, cybersecurity accounts for 6% to 10% of a CIO's budget. For many companies, this substantial budget – which may ultimately not be enough to protect against all cyberattacks – is a form of insurance premium or avoidance cost in the face of potential losses caused by an attack. Protecting data, production lines, employees, company assets, and so on, is necessary, but not at any price. Return on investment must be proven in a context of cost reduction.

All of which makes cybersecurity an attractive long-term investment theme. As Letort put it, "Cybersecurity is a captive business, offering high visibility on cash flows. Cybersecurity solutions are deployed for 10-15 years."

Microsoft forecasts sales of $28 billion for 2024 for its cybersecurity division, representing 11% of the Group's total sales. It's also a sector that recruits – there will be a shortfall of 15,000 positions in France over the next five years. Hiring means investing in training and retraining new talent. Some hackers, like Victor Poucheret, define themselves as ethical. They seek to identify system flaws before they are exploited by cybercriminals and warn governments or companies in advance.  

Technology can help to increase both the danger of cyberattacks and the arsenal of solutions for responding to them. On the one hand, generative AI can increase the chances of detecting attacks. Microsoft has integrated OpenAI into its cybersecurity solutions, enabling productivity gains and improved data quality. 

On the other hand, AI can also be used to prepare fishing scenarios, attack patterns, code malware faster, corrupt data injected into a model. In short, AI is not good or bad in itself – it all depends on how it's used.

3. Can we cut security spending? 

Safety and security isn't just about cybersecurity and the digital world. It's also in the real world, whether we’re talking about food, water, the work environment, or transportation.

And just as ignoring the threats of cyberattacks in the digital world would seem reckless for a modern CEO, cutting security spending in the real world is equally risky for a company boss. Take the case of aerospace giant Boeing. 

In February 2024, the Federal Aviation Administration (FAA) Administrator Mike Whitaker gave Boeing 90 days to develop a comprehensive plan to address ‘systemic quality-control issues’ and barred it from expanding 737 MAX production. By June, a Senate Committee on Homeland Security and Governmental Affairs hearing in June titled ‘Boeing's Broken Safety Culture’ detailed the numerous technical failures of the 737 MAX model, which caused two crashes in 2018 and 2019 – and several incidents since.

Clearly, even in times of recession, it's often impossible to cut back on safety spending imposed by regulations. Regular maintenance of fire safety systems, for example, is mandatory. 

However, this regulatory constraint offers the shareholders of companies that provide security solutions visibility and recurrence on the flows generated. More and stricter regulations mean that we need to invest in safety features, irrespective of the specific engagement. And safety features are increasingly embedded into products and services that we can buy every day – some of which we rarely have the ability to opt out of. When you buy a car for instance, the safety features are included. Indeed, most of the time, you buy safety as an embedded component of a product or a service.

For Thematics AM, safety – like all the trends underlying its strategies – is a secular growth driver, transcending countries, economic cycles and sectors. As Mathieu Rolin, co-manager of the Thematics Safety strategy, concluded: "Companies linked to the safety investment theme offer a level of growth structurally superior to that of the global economy and the MSCI World. Security is everywhere, all the time.”  

Written on 27 June 2024

Thematics AM is an affiliate of Natixis Investment Managers, and forms part of our Expert Collective.