The World Economic Forum, the annual gathering in Davos, Switzerland of the global titans in finance and politics, which has been taking place this week and ends on January 25 might seem a million miles away from the day-to-day work of ESG professionals. But one look at its annual Global Risks Report is a firm reminder that responsible investment is front and centre of global economic concern.
The report analyses responses from over 700 leaders and decision-makers from the World Economic Forum’s global multi-stakeholder community on 31 selected global risks. For the first time, survey respondents were asked directly to nominate their risks of highest concern for the coming decade. A global risk is defined as an occurrence that causes significant negative impact for several countries and industries over a time frame of up to 10 years, with a particular accent on potential systemic breakdown.
The list reads like an ESG issues report!
World Economic Forum: Ten Global Risks of Highest Concern in 2014
1. Fiscal crises in key economies
2. Structurally high unemployment/underemployment
3. Water crises
4. Severe income disparity
5. Failure of climate change mitigation and adaptation
6. Greater incidence of extreme weather events (e.g. floods, storms, fires)
7. Global governance failure
8. Food crises
9. Failure of a major financial mechanism/institution
10. Profound political and social instabilityRead a little deeper in the report, and on risk number one, the WEF notes that fiscal crises based on unsustainable spending and political instability can have a serious impact on government and corporate bonds in a country. Let’s call it ‘strategic investment risk’. On water crises, the report says the ‘overarching prescription’ is mixed public/private investment in information, institutions and infrastructure. Let’s call that ‘strategic investment opportunity’. Both are examples of topics long-term investors should, apparently, be thinking deeply about. Indeed, they are issues that RI research in the market is increasingly getting to grips with in a forward-looking, materiality-focused manner.
But there’s a fundamental discrepancy on display at Davos. A look down the speaker agenda for the conference reveals a dearth of buy-side institutional investors; no large pension funds, sovereign wealth funds or investment managers. Even the bankers present tend to talk on big-picture topics (more ‘regaining trust’ anyone?) rather than what they are doing with their assets. In short, few of the world’s most powerful asset owners are at the World Economic Forum addressing what these top ten global risks mean for their long-term investment. One breakthrough could be yesterday’s announcement by the United Nations Environment Programme of an 18-month inquiry into policy and market blockages that are working against a move to greater green financing and more sustainable financial markets, as we report today.
But the lack of big asset owners talking societal and financial risk is a problem when trying to take the World Economic Forum’s top-down economic pow-wow seriously. At the same time, it’s a major challenge for responsible investment to be making the big-picture connection and taking the stage with the Davos elite.