More Than 110 Investors Discuss How They Plan for the Unexpected
Our economy, society and planet are facing many long-term systemic risks. Institutional investors must respond to challenges such as climate change and technological evolution and plan for the unexpected.
Rather than wait for these trends to become emergencies, investors who begin to tackle them now can start to mitigate the risks they pose to their portfolios and explore ways to capture opportunities that deliver long-term returns.
As a bonus — for both their beneficiaries and portfolios — adopting these investment practices should help build a more resilient economy that considers the future needs of the environment and society in tandem.
For many asset owners, the willingness to change and advance is there — but the best practices of advanced investors are not obvious, and measurement tools are limited.
Investors Know There Are Issues to Tackle — But How?
Over the past two years, the World Economic Forum’s research, in collaboration with Mercer, identified six critical risks that sovereign wealth funds, pension plans, endowments, foundations and insurers are most concerned about over the long-term.
在我们的2020年调查中，超过30个资产所有者，总资产占3.4万亿美元 - 投资者的三大趋势是气候变化，低和负利率和技术进化。
Amid the pandemic, many governments and businesses across the globe have made commitments to rebuild the economy in a sustainable way by addressing and adapting to climate-change risks.
Meanwhile, the pandemic has propelled central banks and governments to act together to promote economic stability resulting in expectations of continued low, or even negative, real long-term interest rates.
Our research shows that investors are also concerned about water security, geopolitics and demographic shifts, specifically ageing population growth in Africa and South Asia.. If not well managed, these trends will compound the resulting instability globally, as we see more inequality, populism, protectionism, threats to free trade and natural catastrophes. Investors know there are issues to tackle — the challenge is how to do it?
To mitigate the major risks that investors face from these systemic trends, institutional investors need to scrutinize, adapt and protect their portfolios, as well as capture opportunities to pursue attractive risk-adjusted returns. Yet, our research shows that many institutional investors have made only some or limited progress on most of these systemic trends.
许多投资者也缺乏对愿景，治理和实施旅程的自我意识，相信它们比他们真正的更先进 - 特别是与同龄人相比。
For example, many believed they were making great progress on tackling climate change risks because they had a responsible investment policy. Yet often the policy was not specific enough from an investment or metrics-tracking perspective to enable implementation, and remuneration was not aligned with the policy’s goals.
因此,许多投资团队没有motivated to evolve their sourcing process or feel accountable to update the policy to make it more actionable.
Advanced asset owners, however, have put in the effort required to integrate the global systemic trends into their strategic decision-making processes, adapting their vision, governance and implementation practices to account for goals, beliefs and stakeholders’ feedback.
From a top-down perspective, senior leadership at advanced asset owners have generally evolved their investment and governance policies to successfully integrate the trends. Bottom-up, advanced asset owners have investment teams that understand the systemic trends and possess the appropriate guidance, incentives and resources to identify and invest into relevant opportunities.
Three Ways to Become an Advanced Investor
This framework enables investors to measure progress on the key thematic trends identified in our research and see how they are progressing relative to peers.
Investors can use the framework and case studies to ask themselves: “Are we in development mode in addressing these systemic trends? What can we do to be more like the investors that are leading the way?”
Self-assessment will enable investors to be more proactive in addressing these trends, and, importantly, have visibility into areas in which they can amend their approaches to align with best practices and be in a better position to plan for the unexpected.
We identified six traits among advanced asset owners:
- Diversity of thought: Cognitive diversity that draws on varied experiences and specialized expertise to access insightful perspectives
- Accurate self-assessment: An ability and willingness to draw from internal and external stakeholders to understand and address organizational shortcomings
- Commitment to transparency: Clear communication to stakeholders from the board and senior leadership regarding beliefs, vision and objectives so that stakeholders align and contribute towards goal fulfilment
- Culture of innovation: Development of new expertise, questioning of existing norms and exploration of emerging investment themes and processes
- In the context of climate change, engage
For climate change, an emerging trend among advanced investors is engagement over negative screening and divestment. This means not completely divesting from certain sectors, such as fossil fuels, but instead pulling out of certain companies that are not taking serious actions to address the energy transition.
Beyond engagement, asset owners are addressing the trends through public and private investments. For instance, sustainable agriculture and renewable energy infrastructure to address climate change or robotics ETFs and cybersecurity funds to gain exposure to technological evolution. The asset owner survey identifies which products investors are considering, such as blue bonds and investments into women- and minority-owned organizations.
For investors to successfully respond to the long-term, global systemic risks facing the economy, society and planet, our framework can be a helpful resource to assess, plan and empower.
This piece was originally published in theWorld Economic Forum.