The investment process and theory that financial professionals have been using for the past three decades needs to be revamped to face serious issues like climate change and biodiversity loss, the Chartered Financial Analyst (CFA) Institute was told.
Jaap Van Dam, Principle Director Investment Strategy for PGGM, the co-operative pension investor in the Netherlands, told the CFA Summit that part of the reason why organizations like PGGM exist is to help steer and influence new events happening in the world.
“That means in order to really achieve long-term sustainable investment performance we have to rebuild the investment paradigm,” said Van Dam. ” We have to take what we have and update it with modern investment theory – investing where financial and societal outcomes are the best possible.”
Geoffrey Rubin, responsible for designing and implementing Canada Pension Plan’s long-term investment strategy, said the first challenge is to define exactly what is meant by risk.
Rubin said every investor has a different threshold for pain or appetite and before the focus turns to measuring risk it must first be outlined clearly.
“Our organizations tend to do this poorly,” said Rubin. “Know thyself is incredibly important for our types of organizations.”
The first order of business is for organizations like CPP is to have a clear grasp of what its board is trying to achieve, he said.
“This is exciting times for us in our professions …trying to think of new ways to assess risk and how best to take advantage of them all, but also bring some humility to the exercise….. Let’s be very deliberate and thoughtful about the tools that we use and assemble them in ways that help us.”
