Trendsetters: Transformational Investment Practices of Advanced Investors


  • Key global systemic trends include climate change, low and negative real long-term interest rates, technological evolution, demographic shifts, geopolitical instability and water security.
  • Advanced asset owners integrate global systemic trends into their strategic decision-making process, by adapting their vision, governance, and implementation practices.
  • They are committed to innovation, engagement and sharing of best practices; and incorporate the impact of changing regulations, policies and data availability into their investment decision-making.

This World Economic Forum White Paper “Trendsetters: Transformational Investment Practices of Advanced Investors” builds on the foundation set by the preceding paper “Transformational Investment: Converting Global Systemic Risks into Sustainable Returns” that explained the key global challenges facing our economy, environment and society today. This follow-on report highlights the importance of having in place the right vision, governance and implementation structure, and the need for the global investment community to share their perspectives and ideas so as to create better solutions for more sustainable success over the long term. As Project Chair of this report, Lim Chow Kiat, GIC’s CEO, would like to thank the World Economic Forum, Mercer and all contributors including the GIC team, for their hard work and collaboration in putting together this useful framework and paper for the benefit of global asset owners and investors.


EXECUTIVE SUMMARY

This White Paper builds on findings in the “Transformational Investment: Converting Global Systemic Risks into Sustainable Returns” White Paper, which focuses on the investment opportunities and risks of today’s most challenging global trends. Based on further engagement with global asset owners and asset managers, this paper addresses:

  • How asset owners adapt decision-making to capture global systemic trends
  • What differentiates an asset owner’s level of advancement in addressing the trends
  • What new and tested solutions exist
  • How asset owners engage with stakeholders to effect regulatory, policy and company-specific change
  • How asset owners use data and tools to improve investment decision-making

The paper summarizes the actions taken by asset owners to integrate the trends into their investment and risk management processes. It synthesizes the findings into a self-assessment framework that investors can use to improve their readiness in dealing with systemic challenges. It also presents investment solutions and opportunities that accelerate the industry’s ability to address the trends (see the report’s “Climate change self-assessment workshop” chart and click here for additional exhibits).

GLOBAL SYSTEMIC RISKS THAT MATTER TO MOST INVESTORS

  • Climate change*: Risks (e.g. physical and transition) and opportunities (e.g. renewable energy) associated with climate change
  • Low and negative real long-term interest rates: Return and monetary policy implications for investors and stakeholders
  • Technological evolution: Risks (e.g. cyberattacks and data fraud) and opportunities (e.g. venture capital and productivity) associated with technological change
  • Demographic shifts: Implications of ageing populations, changing consumer preferences and migration
  • Geopolitics: Implications of global inequality, populism, protectionism and threats to free trade
  • Water security: Environment, human health and economic implications of declining quality or quantity of fresh water

*This initiative’s asset owner survey ranked climate change as the most relevant trend from an investment perspective. As such, this paper’s case studies focus on climate change.

KEY TAKEAWAYS

  1. Advanced asset owners 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.
  2. Many asset owners are not aware of how they compare to peers with respect to integrating the trends. They are not able to assess their practices relative to industry-leading approaches without a benchmark of peer organizational practices.
  3. When advanced asset owners do not find investment products in the market that address these trends, they innovate and explore new investment approaches.
  4. Advanced asset owners commit to engaging with investee companies and to sharing with the broader community so that the industry evolves and business practices improve.
  5. Advanced asset owners understand how to quantify and assess the implications of changing regulations, policies and data availability on these trends, and incorporate these assessments in their investment decision-making.

Report findings informed by:

  • Survey results from over 30 influential asset owners (e.g. sovereign wealth funds, pension funds, insurers, endowments, foundations) representing over $3.4 trillion in aggregate assets
  • Over 160 interviews with asset owners, investment managers, data providers, academia and government agencies, including more than 80 interviews with global asset owners
  • Multiple World Economic Forum-led industry events with asset owners and investment managers
  • Steering committee contributions from GIC Private Limited (GIC), Ontario Municipal Employees Retirement System (OMERS), OPSEU Pension Trust (OPTrust), Swiss Federal Pension Fund PUBLICA (PUBLICA) and Zurich Insurance Group

Investors’ progress in integrating the trends varies greatly. Wider awareness of the more advanced practices should benefit the global community. By profiling current practices as “developing” and “advanced”, this paper provides asset owners with a self-assessment benchmark, enabling them to compare their vision, governance and implementation practices to peers. Throughout this work, organizations generally under- or overrated advancement relative to peers, illustrating the need for a benchmarking framework that identifies competency gaps and helps investors to catch up with more advanced practices.

TRAITS OF ADVANCED ASSET OWNERS INCLUDE:

  1. Diversity of thought: Cognitive diversity that draws on varied experiences and specialized expertise to access insightful perspectives
  2. Accurate self-assessment: An ability and willingness to draw from internal and external stakeholders to understand and address organizational shortcomings
  3. Commitment to strategic vision: A shared belief that taking action today on factors that affect the portfolio over the long term will result in enhanced risk-adjusted returns
  4. 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
  5. Culture of innovation: Development of new expertise, questioning of existing norms and exploration of emerging investment themes and processes
  6. Willingness to collaborate: Commitment to share best practices with peers and stakeholders so that the industry evolves more quickly, positively affecting regulations and policies

Global systemic trends and challenging issues, such as climate change and social injustice, require international partnership. COVID-19 highlighted the power of international collaboration as vaccine approval came in under 12 months. Similarly, investors’ increased attention to reporting on metrics that address business ethics, human rights, diversity and worker safety, among others, will improve transparency and industry responsiveness. Meaningful data will assist investors when establishing, implementing and tracking strategies to capture these opportunities.

This White Paper provides asset owners with ways to better address the global systemic trends and pursue higher risk-adjusted returns. It also provides insight into investment products that asset owners either use already or are considering in order to take advantage of opportunities associated with each trend. For example, approximately one-third of asset owners surveyed are considering allocations to sustainable agriculture and investments through women- and minority-owned organizations, demonstrating that substantial demand for innovative solutions exists.

For the full report, click on the “download now” button on the right.