Behavioural Finance, implications for Tomorrow's Client

Towards the SDGs: Robust ES Data from Better Supply Chains Monitoring

Join the top executives from Cornerstone Capital Group, a $1B+ SEC registered investment adviser that specializes in sustainable and impact investing, for an in-depth look at this growing facet of financial services. Cornerstone engages with foundations, individuals and families to pursue a shared vision: the realization of a more regenerative and inclusive global economy. In this interactive live session, the Cornerstone team will provide an overview of the growth in environmental, social and governance (ESG) analysis, ways in which it can be woven into competitive financial portfolios, and some of the key considerations to watch for in evaluating “sustainable” or “ESG” branded funds. In addition, the session will discuss key impact themes, such as investing for gender equity, racial equity and climate action, as well as the critical role of the United Nations Sustainable Development Goals (UN SDGs) in driving change.

Attendees will learn:
• Evolution of sustainable and impact investing, key terms and definitions
• The myth of underperformance and other barriers to adoption
• What a sustainable portfolio can look like (asset allocation)
• How the UN SDGs are driving changes to the investment process
• Key investment themes and the role of investors in influencing positive change

Presenters:
Erika Karp, Founder and Chief Executive Officer, Cornerstone Capital Group
Craig Metrick, CAIA, Chief Investment Officer
Katherine Pease, Chief Impact Strategist

The “Sustainability” became a symbol of world’s wealth and growth and a guiding goal for prosperity in economic and financial aspect. This evoked changes in the investment approach, which started to consider also non-financial factors such as ESG when portfolio assets allocate and manage. On the EU scene the active “switching” to sustainability is incorporating in the policies and legislative framework, accompanied by financial regulations to involve sustainable investments and private finance for supporting the achievement of the sustainable goals.

By the growth strategy - European Green Deal, set out in December 2019, was declared the aspiring goal Europe to become “the first climate neutral continent by 2050”. This ambition commits huge public and private financial resource and priority measures towards: setting an EU sustainability taxonomy and investor duties for long-term horizons and ESG incorporation into investment decisions; reforming the disclosures; retail investors access to sustainable finance opportunities; creating standards for related financial assets, also merging the sustainability in the governance and financial supervision of the financial institutions. All priorities are under active elaboration as the first one – the Taxonomy regulation, is a fact since June 2020 and supplies with a framework to facilitate sustainable investment. Some of these tools are expected to support a 'resilient, sustainable and fair' recovery from COVID-19 pandemic.

A theme to watch and understand, crucial for the EU and the world and driving the finance system to sustainable investments.

Ever-greater demand is combining with increasingly uneven and unreliable supply to make water one of the world’s most precious resources. On the demand side, the planet’s swelling population is not the only factor; increasing global wealth is also changing patterns of water consumption as billions more people expect to enjoy regular showers, to eat more water-intensive crops, to water their gardens, to wear fabrics that draw heavily on water for their creation, and to use electricity whose generation depends on water for cooling.

On the supply side, climate change and shifting weather patterns are making the distribution of rain less predictable, as evidenced by the increase in both devastating floods and droughts around the world. At the same time, migration and demographic shifts are moving people away from major water sources: 1.8 billion people are expected to be living in countries or regions with absolute water scarcity, and two-thirds of the world population could be under water stress conditions, by 2025

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The asset management industry has been facing four main challenges since the 2008 financial crisis, regarding not only alpha generation but also risk mitigation: persistent low interest rates, drastic change in volatility regimes patterns, deflationary environment and decreasing alpha, increased competition across asset managers.

Neither active (e.g. sector rotation as diversification is dying, or options due to high cost of carry) nor passive asset management styles (due to under/over-risking patterns, too aggressive equity de-allocation vs. too slow re-equitisation, or contributions to market crash feedback loops) have significantly and consistently captured velocity changes over the past decade.

Here we present some sound mix between fundamentals and systematic market technical indicators in order to capture velocity changes through: embedding economic and supply & demand fundamentals within systematic algorithmic passive asset management, combining “volatility control” with high quality stocks, or rule-based strategies based on trade-off between sustainable low tacking-errors vs. low costs (e.g. using VIX futures or tail risk puts).

With respect to the three value propositions above, digital technologies are helpful for (i) securely merging huge quantities of data across different sources in a secure way (using data virtualisation), (ii) devising suitable portfolio rebalancing strategy (using multi-steps automatized back testing and stress tests across a wide range of patterns and stress tests); (iii) selecting sustainable investment and hedging assets, and managing semi-static hedging and liquidity issues (using big data, artificial intelligence, non-linear market impact modelling and “optimal control”).