The World Economic Forum and Mercer have released a new whitepaper to help the global investment community to address six specific threats to sustainability.
The six risks include water security, climate change, population growth, geopolitical uncertainty, negative interest rates and technology disruption.
The risks have been identified in World Economic Forum’s Global Risks Report 2020.
Up to $6.27 trillion in investment is required per year to mitigate these risks, according to “Transformational Investment: Converting Global Systemic Risks into Sustainable Returns”.
World Economic Forum recommends governments, corporations and insurers to accelerate investments in renewable energy, food production, infrastructure, education and more.
World Economic Forum and Mercer propose a six-step framework to help investors navigate these challenges.
- Understand – the overall impact on the funding entity, objectives and beneficiaries.
- Collaborate – with similarly situated organizations that are concerned about the same risks and opportunities.
- Design – governance, policies, delegation and accountabilities for material systemic risks.
- Invest – to manage the portfolio’s exposure to the global systemic risk.
- Transform – through driving investment strategy that delivers change.
- Monitor – and revisit; apply learnings to improve policies and processes.
Maha Eltobgy, head of investing at World Economic Forum, said; “The COVID-19 pandemic has altered the global economy in unprecedented ways.
“The pandemic has impacted capital markets, liquidity, the financial stability of entire industries and even challenged the fiscal solvency of governments. The Transformational Risk framework offers investors a new way to analyse systemic risks in the 21st century.”
Rich Nuzum, the president of investments and retirement at Mercer, adds: “Asset owners face an evolving set of long-term risks and challenges, accompanied by opportunities for transformational investment. The same six-step framework that asset owners have been applying to other long term systemic risks has turned out to work well when applied to the COVID-19 pandemic and its associated impact on the economy, society and financial markets.
“Disciplined, agile governance and implementation arrangements are being applied by the world’s leading investors to help mitigate systemic risks, while simultaneously enabling the pursuit of attractive expected returns.”