SI Debate: Resilience as an investment imperative

When the Strait of Hormuz effectively closed in March and early April, it disrupted oil and liquefied natural gas flows on which billions of people depend. Energy markets convulsed. This was an unprecedented event, but not an unpredictable one, since the Strait is a critical chokepoint in a fragile region, serving economies with limited near-term alternatives.

It also stands as one of the clearest illustrations of how energy resilience – through greater autonomy – and climate investing can reinforce each other. The question is: What else in the economic systems that generate portfolio returns is similarly exposed? We believe a great deal.

Societal resilience – the capacity of economies, ecosystems and institutions to absorb shocks, adapt, and retain their core function – remains an underappreciated risk in portfolios today.

Like Hormuz, many critical dependencies are invisible in calm conditions. Essential digital capability is concentrated in a handful of firms, and roughly 60% of active pharmaceutical ingredients are produced in India and China.

Resilience underpins long-term value creation. It spans security across energy, information, food, healthcare, institutions, critical resources, climate and ecosystems, among others.¹

The risks associated with declining security along any of these dimensions can result in investment risk. Supply chain disruptions, military conflicts, extreme weather events – these are all examples where declining resilience can affect investment returns.

Geopolitics is a core dimension of resilience. Geoeconomic confrontation is the top short-term risk in the World Economic Forum’s 2026 Global Risks Report, and strategists increasingly view fragmentation as a permanent reordering rather than a temporary disruption.²

In a multi-dimensional world, geoeconomic shocks are moving from tail risks toward central scenarios. Geopolitical resilience starts with mapping structural exposures to find out which sectors and regions benefit from industrial policy (such as clean energy, critical minerals, defense, infrastructure) and which ones carry fragmentation risk.

Post-Covid supply-chain disruptions revealed how concentration and geography embed financial risk. Since 2020, companies have started shifting from maximizing efficiency to embedding resilience.

Diversification and nearshoring, dual sourcing and inventory buffers are rising across industries, increasingly supported by predictive analytics. Pharmaceuticals are reshoring capacity to reduce dependence on India and China, and the automotive sector has moved away from pure just-in-time models after the 2022-2023 semiconductor supply shock.

The tension is costly; resilience is a trade-off against efficiency, which is a classic risk/return metric. Return assumptions in listed markets were calibrated for an economy with stronger global integration. The shift toward resilience implies lower trend growth and higher structural inflation.

Resilience also has a strong environmental aspect, particularly regarding climate change. Annual economic damage from extreme weather is around 0.5% of global GDP, and risks will rise as warming increases even under emissions reductions.

In our analysis, around 30% of the MSCI AC World Index is exposed to high gross near-term physical risk emanating from global warming; in the MSCI Emerging Markets Index, this is around 60% of market cap. The key question is how far companies – and the countries in which they operate – can mitigate gross risks through adaptation, insurance and risk management.

Issuer-level risk premiums will increasingly reflect hazard exposure, asset resilience, supply-chain diversification and access to insurance. With risk models and company disclosure still developing, investors who can assess these factors have an informational edge.

Besides shaping the risk profile of portfolios, resilience also presents a substantial opportunity set, from water infrastructure and grid modernization, to resilience analytics, logistics and energy infrastructure.

In addition, resilience often aligns with sustainability objectives – for example, via investments that strengthen energy independence or the regional economy.

The case for incorporating societal resilience into investment strategy therefore rests on double materiality. It affects investors’ ability to meet their primary investment objectives. Additionally, for investors such as pension funds, allocating capital to strengthen the resilience of their home economy can also align with beneficiaries’ long-term welfare.

Resilience can be embedded in different ways depending on investor type, region and preferences. We highlight three common approaches.

First, thematic investing offers direct exposure to resilience opportunities. This can be achieved either through broader allocations to specific resilience‑related themes, or via a more targeted approach that builds more concentrated portfolios of companies strengthening economic resilience that are well positioned to benefit from this long‑term trend. Beyond defense, these opportunities span a wide range of sectors, including infrastructure, IT, insurance, energy and others.

Second, some investors are reassessing the significant US exposure embedded in broad equity and bond indices. Reducing this concentration can help mitigate concentration risk, while reallocating capital toward other specified (home) regions may support local economic resilience. In fixed income, such adjustments can often be implemented efficiently while remaining close to the original benchmark if desired. In equities, however, the implications for the risk/return profile are typically more pronounced.

Finally, targeted allocations to specific sectors or regions within private debt markets – such as infrastructure projects or SME lending to selected companies – can support attractive long‑term returns while directly financing a more resilient (home) economy and society.

The Strait of Hormuz will not be the last reminder that resilience must be priced into portfolios – as a risk, an opportunity and, for some investors, a necessity.

Footnotes

¹SPIL (2026), Knowledge Paper 9
²Mercer (2026), Investment Themes and Opportunities 2026: The Post-Consensus Era; BlackRock Investment Institute (2025), Geopolitical Fragmentation: Mega Forces