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Managing risk in a complex world

In last month’s blog, we made the point that good governance becomes critical when organizations face a crisis. We also stated that in today’s environment, governance is more critical than ever because of the growing economic and environmental risks faced by companies and organizations. We made the point that today, the waters are always choppy. Soon after writing the blog, we had the good fortune of seeing the venerable Janice Stein, Professor and Founder of the Munk School of Global Affairs and Public Policy, Belzberg Professor of Conflict Management, University of Toronto, speak about the key challenges facing us today. We would like to use the points Professor Stein made in her talk to dig deeper into this topic of growing risk because these risks have major implications for corporations, investment managers, and in fact, all of society. According to Stein, it isn’t just growing risk that we are facing, it is growing uncertainty. Besides the obvious threat of nuclear warfare (the risk of which we cannot honestly calculate, Stein surmised, because we have no underlying probabilities) there are four key trends worth paying attention to:

  • The retreat from globalization.

  • Climate change.

  • Ageing demographics.

  • The rise of authoritarian, nationalistic, and non-democratic governments.

There is no denying any of these trends because the evidence for each of them is there for all to see. These trends, according to Stein, are shaping our world in ways we cannot predict. The old rules, the old world order, is breaking down and we are facing a more uncertain and more dangerous world.

What was most insightful about Professor Stein’s talk though, and why her perspective is most relevant to companies and investment managers, is the point that all these trends are interconnected, and, in some cases, mutually reinforcing. For example, climate change affects food security and migration, mass migration leads to a crisis of refugees, and the pressure of refugees fuels a rise in nationalistic governments.

As another example, China’s nationalistic ambitions leads to sanctions by American and European governments, disruption ensues across supply chains and affects the availability of products like medical devices, and consequently, aging groups in North America cannot get necessary and timely medical care. The combinations are endless, but the point is clear.

As investment managers we must acknowledge that the world of today is not the world as it was five, ten or twenty years ago and we must use our insight to guide our investment choices. And to be sure, despite the turbulence and risk and uncertainty, value will continue to be created, growth will still occur, and returns will continue to be generated. We believe that our stakeholder governance focus enables us to identify companies that are best able to manage growing risks and uncertainties while also increasing their net positive impact on the world.

[Image is a series of grey spheres of differing sizes all balancing precariously on top of each other]


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