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Operational resilience and supply chain risk
This piece summarizes our engagement with a leading multinational
beverage corporation we hold — including a site visit to the company’s
largest franchise bottler’s Jundiaí facility in São Paulo, as well as
follow-up discussions with the beverage company’s sustainability
team — to assess how potentially financially material operational risks
such as water availability, packaging, and climate resilience are being
managed following the company’s December 2024 revision of several
sustainability targets.
Physical climate risks: terroir-dependent
risks and opportunities
Physical climate risks — such as shifting temperature patterns, water
scarcity, and soil degradation — are emerging as potentially financially
material considerations for global beverage producers. These risks
are particularly pronounced for companies whose products depend
on specific growing conditions, or terroir, where subtle environmental
changes can affect quality, yields, and brand integrity. While
regulatory and transition risks often dominate climate discussions, in
this piece we cover our engagements with two alcoholic beverage
companies, which focused on how physical climate impacts could
manifest across time horizons and how the companies are positioning
themselves to mitigate these effects.
Cybersecurity: bending, not breaking
Given the increasing risk and relevance of cybersecurity for companies
within our portfolios, and the potentially financially material consequences
of a cyberattack, we conducted a thematic engagement programme to
better understand how companies are managing the risk. Including a case
study of a company demonstrating mature cyber governance, this piece
covers eight key takeaways from the thematic engagement programme.
Supply chain resilience in the semiconductor sector
The semiconductor value chain remains one of the world’s most complex and
globally interdependent manufacturing ecosystems. Recent geopolitical tensions,
export controls, energy constraints, and post-pandemic logistics shocks have
reinforced the need for robust, regionally diversified, and technologically resilient
supply chains. Against this backdrop, we engaged with three semiconductor
companies we hold in our portfolios to assess how leading companies are navigating
these pressures. In this piece we look at how their strategies highlight a spectrum
of approaches, from parallel production capacity and multi-sourcing to strategic
partnerships, regional clustering, and selective technological substitution.
Responsible AI: transparency, governance
and business-model resilience
Artificial intelligence (AI) is reshaping business models across sectors, from Health
Care and Financial Services to digital content and entertainment. While AI may bring
meaningful opportunities to improve efficiency, product innovation and customer
experience, it also raises questions around transparency, data governance, regulatory
compliance and long-term value protection, all of which could pose potentially financially
material risks to companies. In this piece we outline our engagements with companies,
which illustrate how responsible AI considerations vary across sectors - and why robust
oversight, disclosure and long-term planning are becoming increasingly important.
Product safety in personal care
Given rising consumer scrutiny of cosmetic ingredients and a litigious U.S.
environment, in 2025 we held multiple engagements with a multinational personal
care company we own, meeting with Investor Relations team, Chief Sustainability
Officer, and CEO to discuss product safety, ingredient innovation, and transparency.
The company continues to face product safety litigation in the U.S. and broader
questions from consumers and NGOs around ingredient safety, which we believe
may pose a potentially financially material risk. In this piece we look at how the
company is managing these risks.
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Risk Considerations
There is no assurance that a portfolio will achieve its investment objective. Portfolios are subject to market risk, which is the possibility that the market value of securities owned by the portfolio will decline. Market values can change daily due to economic and other events (e.g. natural disasters, health crises, terrorism, conflicts and social unrest) that affect markets, countries, companies or governments. It is difficult to predict the timing, duration, and potential adverse effects (e.g. portfolio liquidity) of events. Accordingly, you can lose money investing in this strategy. Please be aware that this strategy may be subject to certain additional risks. Changes in the worldwide economy, consumer spending, competition, demographics and consumer preferences, government regulation and economic conditions may adversely affect global franchise companies and may negatively impact the strategy to a greater extent than if the strategy’s assets were invested in a wider variety of companies. In general, equity securities’ values also fluctuate in response to activities specific to a company. Investments in foreign markets entail special risks such as currency, political, economic, and market risks. Stocks of small- and mid-capitalisation companies carry special risks, such as limited product lines, markets and financial resources, and greater market volatility than securities of larger, more established companies. The risks of investing in emerging market countries are greater than risks associated with investments in foreign developed markets. Derivative instruments may disproportionately increase losses and have a significant impact on performance. They also may be subject to counterparty, liquidity, valuation, correlation and market risks. Illiquid securities may be more difficult to sell and value than publicly traded securities (liquidity risk). Non-diversified portfolios often invest in a more limited number of issuers. As such, changes in the financial condition or market value of a single issuer may cause greater volatility. ESG strategies that incorporate impact investing and/or Environmental, Social and Governance (ESG) factors could result in relative investment performance deviating from other strategies or broad market benchmarks, depending on whether such sectors or investments are in or out of favor in the market. As a result, there is no assurance ESG strategies could result in more favorable investment performance.
IMPORTANT INFORMATION
The views and opinions are those of the author as of the date of publication and are subject to change at any time due to market or economic conditions and may not necessarily come to pass. The views expressed do not reflect the opinions of all investment personnel at Morgan Stanley Investment Management (MSIM) and its subsidiaries and affiliates (collectively the Firm”), and may not be reflected in all the strategies and products that the Firm offers.
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