Investor risk analysis must include the risk of a failing planet or broken society

This note from Nawar Alsaadi rings true to me based on the conversations I’ve had with many about climate. People can’t wrap their head around what the science says is true – or they haven’t been informed about how dire the circumstances are. Here is Nawar’s note:

When I chat with conventional portfolio managers about ESG risks such as climate change, social inequality, and biodiversity loss among other risks, I am reminded of that line from the movie ‘Ad Astra’ about the character who could only see what was not there, and miss what was in front of him.

Conventional portfolio managers are trained to spot the most remote financial risks, but when it comes to the risk of a failing planet or a broken society, risks that could undermine the stability of the financial system itself, they wouldn’t bat an eyelash. The true barrier to full ESG integration is not data or technology, it’s an outdated view of the world.

The comments on Nawar’s note echo his sentiments, along with some additional commentary – such as this one from Alex Struc:

Though I think it is rarely because of ill intent. It is an issue of inflexible organisational constructs and most investment firms’ inability to move seamlessly between extreme specialisation and innovation states. Recognising the architectural merits of finance – the ability to affect and ignite holistic outcomes – is a considerable opportunity, which remains largely untapped. Not for long. Once the penny drops that this is the most asymmetric trade, seasoned investors and traders will do what they do best — leverage and build scale.