As systems thinkers we have constructed this mindful of how these topics interconnect and the benefits of combining them, as well as the problems of doing one without the other.
The first six months of 2020 were extraordinary in that they delivered three separate defining moments (climate crisis, global pandemic, social / inequality crisis) which reinforce our belief that the world, and investment, will have to navigate a very complex future.
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Climate change / sustainability
In 2020 we established the +1.5C working group, and quickly spun out a separate duty of ownership working group. We believe the work started by these groups should continue and develop during 2021.
We see three significant possible research streams:
Develop a ‘3D mandate’ ie risk, return and impact (a strong connection to the TPA approach below)
Explore solutions to the gaps preventing sustainability adoption, as identified in this year’s work
Explore our hypothesis that the future of investing, will require significantly increased amounts of new primary investment.
We will not be able to make the changes to address our sustainability challenges if our organisations’ cultures are resistant to change. The active management of culture is therefore a necessary, and also exciting part of our future. We describe phase 1 of our culture work, which started in 2015, as a proof of concept – showing that culture could be modelled, assessed and scored. In 2020’s phase 2, we worked with a group of organisations in the power of culture study – written up in a white paper – to test and refine the concept and made it operational and efficient. We will move on to phase 3 in 2021 and extend the power of culture study into more asset owner and asset management organisations.
Total portfolio approach (TPA)
Given the conclusion of the TPA working group in 2020 – that TPA offers a material return advantage over strategic asset allocation approaches, albeit with a high governance and operational demand (a link back to culture) – we feel that we should pick up this work and find ways to refine and promote it so that it can be adopted by more organisations.
Outside the formality of the research streams we will continue to think about issues affecting the industry, to connect the dots as best we can, and to offer wider perspectives where we are able.
There is a long list of potential topics to explore – such as technology, increasing allocations to China, evolving business models and much more.