#19: Attention Asset Owners: Are You 100% Sure Your Current Portfolio Risk Management is Cutting Edge?
If in doubt, read on and learn what to do about it!
To Recap: Last week, we discussed a critical topic: Structural Systemic Risk and provided a Checklist on how we categorize firms based on their maturity in managing portfolio risk.
We argued that at the core of climate change and many global challenges lies a fundamental flaw in our economic and political systems. These systems fail to hold companies accountable for their environmental impact, putting those who voluntarily reduce emissions at a competitive disadvantage.
We said that without addressing these systemic issues, risk management efforts fall short, jeopardizing portfolios, businesses, and society.
We also shared how we categorize firms into three stage:
Early Stage:
Utilize science-based scenario analysis to estimate climate risk
Leverage AI to assess financial impacts of climate change
Advanced:
Expand strategies to include biodiversity and other Sustainable Development Goals (SDGs) alongside climate change
Cutting Edge:
Challenge systemic issues head-on
Engage in discussions about broader systemic change to stay ahead of the curve and secure long-term success
We paused here as this is not your usual win-win-win green growth talk.
It requires a willingness to challenge long held beliefs. It also requires a sobering look at how old thought patterns may keep you in a paradigm that won't solve the challenges we face and that poses severe risk to your portfolios.
For example, ask yourself: Does this conditioning keep me using modern portfolio theory and other traditional approaches that do not address root causes of investment risk? Does it prevent me from using strategies that fully mitigate risk?
Only by asking these kinds of questions will you be able to move to real solutions and effectively protect your investment portfolios.
So Now, Let's Move On …
Embracing New Horizons with System Change Investing
No doubt, evolving human systems is highly complex. Growing financial community awareness of the importance of system change is producing new investment strategies intended to drive it. These approaches mainly involve investing in green technologies and sectors. The approaches provide benefits to shareholders and society. But they do not adequately address structural systemic risk.
System Change Investing (SCI) is emerging as a powerful strategy. By adding system change metrics to sustainable investment models, SCI rates companies on their sustainability and system change performance. This shifts investments towards new sustainability leaders, driving sector-wide and systemic change. It is easy to implement and broadly applicable in the capital markets because all companies can be rated on system change performance.
Why SCI?
Enhances investment returns
Provides the highest sustainability benefits and impacts
Positions asset managers as global leaders in sustainable investing
Offers the first true full risk mitigation strategy for investors
The SCI team offers comprehensive models and strategies to help financial firms integrate system change into their investment approaches effectively and profitably.
Ready to lead the way in superior portfolio risk management while driving truly sustainable solutions?
Let's connect and explore how we can work together to protect your portfolios and create a more resilient future.