Managing Investment Risk for the Long Term

The document examines the shift among institutional investors toward 'active ownership' to manage non-traditional risks—such as climate change and governance—that are often poorly priced in financial markets. Based on a survey of 23 sovereign and government funds, it finds that most investors are moving away from passive voting toward direct engagement to protect long-term franchise value, though they are constrained by a lack of internal resources and inconsistent data. Case studies of the Commonwealth Superannuation Corporation, New Zealand Super Fund, and UC Investments illustrate diverse strategies, including the creation of specialized research firms, the implementation of low-carbon divestment targets, and the commitment of capital to clean-energy innovation.

• Institutional investors are increasingly adopting 'active ownership' strategies to mitigate non-traditional risks and enhance returns, moving away from passive voting in line with company management. Approximately 95% of surveyed asset allocators vote on shareholder resolutions, and over 40% engage in direct dialogue with companies in which they hold significant stakes.
• The integration of non-traditional risks is driven by 'risk- and value-based' financial disciplines rather than moral or philosophical 'values-based' strategies. Investors view the assessment of these risks as essential for generating stable, long-term risk-adjusted returns for their stakeholders.
• Significant barriers hinder the ability of institutional investors to be active shareholders, most notably a lack of internal resources (cited by 59%) and a lack of information and proper data (cited by 34%). To overcome these, investors emphasize the importance of strong board composition and partnerships with external agencies.
• The Commonwealth Superannuation Corporation (CSC) addressed data gaps in non-financial risks by seeding Regnan, a not-for-profit research firm that assesses the top 200 companies on the Australian Stock Exchange (ASX) against 12 universal principles across environmental, social, and governance factors.
• The New Zealand Super Fund (NZSF) implemented a climate change strategy to reduce portfolio risk, setting 2020 targets for a 20% decline in carbon emission intensity and a 40% reduction in carbon reserves. In 2017, the fund reduced exposure to emissions and reserves across its passive global equity portfolio by NZD 950 million.
• UC Investments adopted a proactive sustainability framework focusing on increasing capital flow into clean energy rather than full divestment of fossil fuels. This included a $1 billion commitment to the Breakthrough Energy Coalition and a $500 million pledge to Aligned Intermediary for climate infrastructure projects.

APA

World Economic Forum (2018). Managing Investment Risk for the Long Term. http://www3.weforum.org/docs/47454_Managing_Investment_Risk_for_the_Long_Term.pdf

Chicago

World Economic Forum. Managing Investment Risk for the Long Term. 2018. http://www3.weforum.org/docs/47454_Managing_Investment_Risk_for_the_Long_Term.pdf.

Wikipedia

{{cite report |author=World Economic Forum |title=Managing Investment Risk for the Long Term |date=June 2018 |url=http://www3.weforum.org/docs/47454_Managing_Investment_Risk_for_the_Long_Term.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{worldeconomicforum2018managing, author = {{World Economic Forum}}, title = {{Managing Investment Risk for the Long Term}}, institution = {World Economic Forum}, year = {2018}, month = jun, url = {http://www3.weforum.org/docs/47454_Managing_Investment_Risk_for_the_Long_Term.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }