By Saker Nusseibeh, chief executive of Federated Hermes Limited.Today, that scepticism is being fuelled by the rapid rise of artificial intelligence, renewed concerns around energy security, the reconfiguration of global supply chains, and increased defence spending. To some, these developments suggest that sustainability was a benefit of a low-rate, low-volatility era.
But these are not cyclical distractions. They are structural shifts that will shape capital markets for decades. Understanding them requires investors to look beyond near-term earnings and consider the resilience of the systems in which companies operate — from energy networks and infrastructure to supply chains, governance and regulatory frameworks.
Recent geopolitical events, from the war in Ukraine to the current conflict in the Middle East, have underscored the strategic vulnerability of economies that remain heavily dependent on carbon-based energy sources.
This is particularly apparent for Europe, China, India and much of the developing world. It is, therefore, imperative that these blocs move towards energy transition as a matter of strategic priority — a pressure the US does not face to the same degree given its substantial reserves.
China has already invested heavily in alternative energy, with some sources claiming that fully half of its grid is non-carbon dependent. That structural investment helps explain why it felt less pressure than expected in response to developments ranging from the expansion of US influence in Venezuela to temporary disruptions around the Strait of Hormuz.
What has become apparent, though, is that energy transition is no longer an environmental preference but a determinant of strategic and economic resilience.
Sustainable investing, properly understood, is not a set of exclusion lists or thematic preferences. It is a framework for allocating capital in ways that recognise longterm risk and opportunity. At its core lies stewardship — the active oversight of how companies deploy capital, manage risk and adapt to structural change.
The rise of AI
The rapid expansion of AI illustrates the scale of the challenge. Training and operating large AI models require immense computing power, and the data centres that support them are already driving a sharp increase in electricity demand across major economies.
Utilities, grid operators and policymakers are being forced to rethink generation capacity, transmission infrastructure and energy pricing. The attacks on the data centres in the Middle East also highlight the strategic imperative of resilient design in the postLiberation Day world.
This is not a temporary surge in consumption. It represents a structural shift in energy demand, placing sustained pressure on power generation, grid infrastructure and energy mix. For investors, the key question is not simply which technologies will benefit, but whether the underlying energy systems can expand fast enough to support them.
Sustainable investing does not preclude capital flowing to these sectors. On the contrary, ensuring resilient energy systems, secure supply lines and effective defence capabilities is fundamental to economic stability. What sustainable investing demands is rigorous oversight — ensuring capital is deployed efficiently, governance structures are robust and long-term risks are properly priced.
Structural transitions inevitably create friction. Infrastructure often lags demand. Technology frequently outpaces regulation. Geopolitical shocks can abruptly reshape trade routes and supply chains. These dislocations create volatility, but they also create opportunity for investors capable of accurately assessing systemic risk.
Rapid expansion of data centres without parallel investment in grid capacity risks bottlenecks, regulatory intervention and stranded assets. Rearmament and defence investment without strong governance discipline risks inefficiency, cost escalation and political backlash. Supply chains built for efficiency rather than resilience can quickly become fragile in periods of geopolitical strain.
Why engagement matters
This is where stewardship becomes essential. Long-term investors have both the incentive and the ability to engage with companies on strategy, capital allocation and risk management. During periods of structural change, those conversations become even more important.
At the corporate level, stewardship means scrutinising investment decisions, balance sheet resilience and operational preparedness for evolving regulatory and technological environments. It also means ensuring governance structures align corporate decision-making with long-term shareholder interests.
But stewardship does not end at the boardroom door. Investors also have a role in engaging policymakers on the infrastructure, regulatory frameworks and market design that underpin economic growth. Capital compounds most effectively within stable and predictable systems.
Companies thrive in functioning ecosystems. As the global world order becomes more fragmented intro three of our increasingly inward-looking blocs, the quality of infrastructure, institutional trust and regulatory clarity will play an increasingly important role in shaping innovation and investment outcomes. Where these foundations weaken, risk premiums rise and capital efficiency declines.
Countries that succeed in creating the infrastructure, regulatory clarity and financial frameworks required for the energy transition will strengthen their long-term economic competitiveness. Companies operating within those environments are likely to benefit from more stable operating conditions and more predictable investment horizons.
Ultimately, society determines what forms economic activity are viable. . Shifts in regulation, public policy and consumer expectations will redefine markets and company valuations . Investors who fail to account for these dynamics risk mispricing long-term risk.
The language around sustainability may evolve, and political debate may intensify. But technological transformation, energy security concerns and geopolitical realignment only increase the premium on disciplined, stewardship-led investing.
Sustainable investing, properly understood, is not ideology. It is risk management for an era of structural change.
