The theme of reshoring is becoming a key topic in discussions with businesses

Reshoring must be understood in its various dimensions, including the social dimension, job creation, workforce availability, human capital management, and consumer expectations. Beyond the financial materiality, we aim to structure the dialogue with companies on these fundamental aspects of the social theme.

Tarek Issaoui: We invest in companies, but the rules of the economic game have evolved, and the influence of “top-down” factors is growing. The question of reshoring, of where a company should deploy its production activities and with which resources, lies at the intersection of macro and micro issues. The COVID crisis revealed structural vulnerabilities and led to questions about reaching the peak of globalization and its impact. In terms of ESG, the environmental aspects of these issues are widely debated and analyzed. However, the social aspects of the phenomenon are somewhat less discussed, even though they are intrinsically linked. In this context, we aim to enrich our approach to the “S” pillar, alongside the “E” pillar, in our dialogue with companies. The materiality of the “S” pillar is evident, but it can benefit from a richer analysis.

How is the current context more favorable to reshoring strategies for companies?

Giulia Culot: The technological factor is crucial. It facilitates the automation of production processes, making reshoring initiatives more feasible. Due to the decrease in labor costs, which, though they have risen in China in recent years, are still more competitive, and the ability to set up a production chain more quickly, some obstacles have been removed. The search for greater resilience in production chains also supports reshoring. At the same time, companies must respond to evolving consumer demand: consumers want more personalized products that meet sustainability goals. The concept of proximity has gained importance in their eyes.

What obstacles remain and could limit this movement?

Tarek Issaoui: The prospect of reshoring is a reality not only in France but across Europe. However, it will generate tensions in terms of access to resources, critical metals, for example, and access to sufficiently cheap energy sources. Europe has bet on renewables, but it is still too early to know whether this choice is the right one. Productivity gaps between countries and the loss of key skills can also be obstacles. Duplicating production chains will become necessary, but this phenomenon will be inflationary. In a sense, globalization has not stopped but has rather taken the form of multipolarity. No country will have access to all the necessary resources. Thus, this multipolarity will lead to the strengthening of blocs, such as the BRICS+, “friendshoring,” or trade alliances between friendly countries aiming to secure their supplies.

Giulia Culot: We will seek to identify success and failure factors in terms of sectors and governance, best practices, and the most relevant strategies. Among the success factors we observe are the importance of developing skills within the company, as well as the ability to establish strong partnerships by building trust-based relationships with suppliers. Economic players also need political visibility, with the establishment of a climate of trust, in order to commit to long-term engagement and innovation. However, the Draghi report on European competitiveness, which highlighted several handicaps in Europe, points to a lack of coordination among the administrations of different EU countries.

As investors, what are, in your view, the reasons driving companies to reshore certain activities, and what will be your points of attention in your dialogue with them?

Tarek Issaoui: The goal of resilience is key for European companies engaging in reshoring to relocate their production closer to local consumers. However, the stakes differ depending on the sector, the company (large-cap or mid-cap), and the country. Germany, historically much more industrial and export-oriented than France, is betting on the survival of the economic model that made it successful, while France needs to rebalance its trade deficit. New forms of reindustrialization, such as “gigafactories,” may allow France to gain market share. This is the complexity of this issue: reshoring strategies cannot be duplicated from one country to another, or from one sector to another.

Giulia Culot: We do indeed identify ESG materiality (environmental, social, governance), even though sustainability is rarely the predominant driver in companies’ reshoring decisions. For example, reducing carbon footprints by relying less on transportation is an obvious benefit. In terms of extra-financial factors, we will also focus on human capital management and the quality of relationships with suppliers. Over the next few months, our goal, within the framework of the “2030, Investir demain” Think Tank initiative, will be to ask the right questions, with the aim of optimizing our SRI approach and developing a shareholder engagement guide.

In partnership with Sycomore AM.