How to tackle the world's biggest challenges and pursue a return

Our economy, society and planet face numerous long-term, global and systemic risks. The COVID-19 pandemic has highlighted the need to better mitigate these risks, which include climate change, water security, geopolitics, technological disruption, demographics and low, long-term real interest rates. The institutional investment community, with its control of capital and influence on global business practices, has the collective power to drive constructive actions that create positive change.

Transformational investment

We define “transformational investments” as investments with an attractive risk-adjusted return, which also help mitigate or address one or more of these long-term systemic risks. A growing majority of the world’s largest, most sophisticated institutional investors are pursuing both independent and collective actions aimed at addressing the risks listed above. They are doing so explicitly in an effort to achieve attractive returns, rather than by sacrificing expected returns.

The World Economic Forum and Mercer have developed a framework to help investors navigate systemic risks to find associated investment opportunities:

Alongside this framework, we have collected related case studies of actual practice across a sample of the world’s largest, most sophisticated institutional investors in the report: 'Transformational Investment: Converting Global Systemic Risks into Sustainable Returns'.

Investment governance considerations to navigate COVID-19 and beyond

Our work has focused on addressing long-term systemic risks and opportunities, and we recognize that investors are grappling with the immediate impact of the COVID-19 market crisis and its related policy responses and economic impacts. As the pandemic plays out, we will better understand its impact on capital markets, institutional asset owners, and the individual beneficiaries of investment programmes. We can already make two observations:

1. The same disciplined, agile governance and implementation arrangements that sophisticated asset owners have developed and adopted following past market crises are generally working well during the current crisis; and

2. Investors can apply the same investment policy-setting framework for pandemics, such as COVID-19, that transformational investors have adopted to deal with other global systemic risks.

Good governance, when applied to the COVID-19 market experience, illustrates how investment practices can benefit the economy and broader society through periods of market volatility and economic uncertainty. It provides a concrete example of investors’ ability to affect positive outcomes and to mitigate systemic risks.

COVID-19’s ability to alter the long-term fundamentals of economic growth and profitability across industry sectors make it a transformative catalyst for long-term investors. The active shift in market expectations for healthcare systems and delivery, consumer services, energy systems and critical infrastructure has major ramifications for governments, economies and investors. While some trends, such as the shift to digital, are accelerating, others require new ways of doing business, such as creating redundant supply chains, despite lower efficiency and additional cost. Developing a governance process to evaluate the implications of these sustained changes, or a “new normal”, and considering their investment ramifications, should be a part of any successful investment programme

We explore the investment governance considerations related to the COVID-19 pandemic, including actionable responses, in another collaborative work between Mercer and the Forum: 'Navigating a pandemic-driven market crisis: Investment governance and strategy'.

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