fyi - report from UK SIF and Scottish Widows May 2025
A stronger focus on systemic risks needed for resilient portfolio returns
New Report identifies the importance of systemic stewardship
7 May 2025
At UKSIF's Spring Conference in Edinburgh, UKSIF, Scottish Widows and Canbury have published a new report outlining the rationale for an enhanced focus on systemic risk in financial services with a clear framework for action.
The report – 'Systemic risks: A framework for portfolio resilience' – demonstrates the importance of systemic risks, which are frequently not addressed effectively in the market. Systemic risks are un-diversifiable risks that can impact entire markets or economic systems through complex interconnections, potentially triggering chain reactions across multiple sectors and disrupting overall market growth. Such risks include climate change, nature and biodiversity loss, income inequality, artificial intelligence, geopolitics and trade wars.
Eva Cairns, Head of Responsible Investment at Scottish Widows highlights:
"For diversified institutional investors with long time horizons, the report emphasises that overall market growth is the primary driver of investment returns. As such it is vital that systemic risks with wide-ranging impacts across markets are addressed to build more resilient portfolios and also contribute to a more sustainable world for pension savers. To achieve this, we need to engage across the wider system that corporates operate in."
The report highlights that exposure to overall market performance (beta) is the primary driver of investment returns. As such, for all investors – but especially for diversified institutional investors with long time horizons – it is vital that systemic risk identification, management, and stewardship is practiced across portfolios. However, at present, such risks are not commonly addressed as part of standard asset management approaches to stewardship. By embedding systemic risk management as part of investment objectives and aligning teams, asset owners can enhance portfolio resilience and potentially have a positive impact on sustainability outcomes, too.
James Alexander, Chief Executive of UKSIF said:
"As this new report makes clear, pension funds and other asset owners are amongst the very few truly long-term actors in the economy, meanwhile asset managers' approaches to systemic risks are often insufficient. To protect long-term returns, it is vital that that the whole industry take systemic risks more seriously and asset owners recalibrate their focus towards these issues.
"This includes engaging with governments, highlighting the impact that systemic issues are likely to have on portfolio values, and considering systemic risk and the development of sustainable markets at all levels of decision-making."
Systemic-risks-a-framework-for-portfolio-resilience.pdf
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James Doyle
Director, Green Finance, Investment Management
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