The COVID-19 pandemic and social unrest in 2020 remind us that the (re)insurance industry’s challenges might change on a year-to-year basis, but they will never end. COVID-19 may represent the vanguard of a series of public health crises arising out of climate change, income inequity, fraying social safety nets, demographic imbalances, resource shortages and increasingly stressed urban infrastructures.
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.
While it sounds straightforward, there is a significant obstacle: Many asset owners are not aware of how they compare to peers with respect to integrating the trends. This is where investors who wish to progress from “developing” to “advanced” require a benchmarking framework to identify gaps and areas for improvement.
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.
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.
In their 2020 survey of more than 30 asset owners — representing over USD 3.4 trillion in total assets — the top three trends for investors were climate change, low and negative interest rates and technological evolution.