As investors, we find ourselves facing a dramatically changed macroeconomic backdrop and a raft of potentially systemic risks which threaten our collective future. How do we balance our role as stewards of our clients’ money with our obligations as sustainable investors?

It is a leader’s primary responsibility to provide direction, pace, and clarity of purpose. Furthermore, a leader must address conflicting priorities, make uncomfortable decisions and be prepared to deal with the consequences.

A leader is also ultimately responsible for ensuring a business can deliver value for all stakeholders. We may employ expert people in specialist teams with technical roles and responsibilities, managing various interests and stakeholders, but at the heart of it, we look to our leaders to determine the direction of travel. Never has this been more important or urgent.

Our view is that we increasingly need sustainable leaders who care about not just what our clients (usually intermediaries) are asking for, but also about delivering the best outcomes for our end beneficiaries.

We cannot deliver long-term financial returns for clients and shareholders while turning a blind eye to market uncertainty, the climate emergency and growing social inequalities.

We are at the end of a 40-year period which is probably unprecedented in human history. It has been a world characterised by stable economic growth and inflation, with all boats seemingly rising.

For many investors working in the markets today, interest rates only ever went down, inflation was low and stable, and companies could get away with behaving as if the planet had infinite resources and capacity to absorb toxic waste. We were a small world on a big planet.

The re-emergence of inflation and the necessary rise of interest rates mean we are experiencing regime change; it is likely to be messy, uncomfortable and challenging.

Good leaders can maintain balance and objectivity even when surrounded by fear, chaos and uncertainty, to remind stakeholders that it will get better again and that the market is cyclical in nature, while recognising the texture of the new era will be different.

We all know that we are coming up against potentially irreversible boundary conditions for our planet — we have limited resources and we are reaching some of those limits.

While there is a divergence of views around how we respond to this, there is broad consensus that a sustainable future requires a change in the way businesses are run and the way capital is invested; it requires a new kind of leadership.

In addition, when all boats are no longer rising, issues of inequality become even more prominent. This burden is disproportionately borne by the younger generations, as well as by those living in poverty, particularly in the developing world.

As leaders we need to juggle these challenging and conflicting demands, to find pragmatic solutions for all clients. A good starting point is to remember whose money we are stewarding. It is savers and investors who are relying on our help to preserve or grow their life savings for expenses, for retirement, or to pass on to future generations.

Our investment, savings and retirement solutions must be sustainable against inflation and market volatility, while ensuring that we don’t destroy the world we are living in.

Our business model needs to be sustainable in the face of growing technology, automation and falling margins, while reducing and mitigating our most material negative environmental, social and governance (ESG) impacts.

Our product range, solutions and investment guidelines need to be sustainable to ensure sufficient flexibility to deliver value for clients in uncertain times.

By sustainable, we mean financially, environmentally and socially sustainable. A superficial focus on ticking ESG or diversity, equity and inclusion (DEI) boxes will not deliver better outcomes in the long run.

We believe that material ESG-related risks, issues and opportunities should be part of the investment decision-making process. They need to be considered as part of the ‘mosaic’ of inputs captured during the research and analysis process for every company, country and decision.

This requires analysts and portfolio managers to be equipped with the skills to assess if, how and when governments, regulators, customers and ultimately markets will factor in the value placed on negative external consequences created by companies.

This is no mean feat. Many may avoid such integration, and some will fail to achieve it. A CIO must embrace this responsibility and not rely solely on separate responsible investment (RI) or ESG teams to lead the way.

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