As the world continues to face prolonged uncertainty and escalating geopolitical, economic, and environmental risks, institutional investors are becoming increasingly exposed to interconnected and cascading threats that have significant implications for investment decision-making.
In this whitepaper, we explore how tail-risk events, including extreme scenarios such as a polycrisis, could affect institutional investors. We also provide guidance on strengthening risk management frameworks to help investors prepare for, respond to, and build portfolio resilience against an increasingly complex landscape.
Key takeaways
A polycrisis involves non-linear, widespread events that could trigger cascading, profound and far-reaching impacts on global financial markets
Polycrisis occurrences are very rare but have happened in the past, meeting the criteria of deep uncertainty, interconnectedness, environmental shocks, and systemic impacts.
A polycrisis in today’s environment would likely be significantly intensified by rapid digital and technological advancements
Stochastic scenarios based on realistic views and assumptions remain a vital starting point to preparing for a polycrisis
The fundamental uncertainty of a polycrisis that may not be fully captured by stochastic scenarios, should be addressed in combination with deterministic narrative-based scenarios to help investors better anticipate and prepare timely for its potential profound outcomes
Contact
Maurits van Joolingen
Managing Director, Climate Scenarios & Sustainability
Federico Andelsman Alvarez
Business SpecialistRelated Insights
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