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Financial institutions are failing to link the stresses of environmental and social factors with significant economic impact, according to a new report involving Rathbones, from the Cambridge Institute for Sustainability Leadership (CISL).
Rathbones is a member of the CISL, an impact-led institute within the University of Cambridge that activates leadership globally to transform economies for people, nature and climate; Rathbones also sits on its Investment Leaders Group, who developed this report.
The report ‘Breaking down silos: Navigating the intersection of environmental and social risks for investors’, published today, found that environmental, geopolitical and social pressures are increasingly interacting in ways that create compounding, financially material impacts globally, but that prevailing risk assessments underestimate their contribution by treating them in isolation.
The consequences for investors can be significant and wide-ranging, leading to capital misallocation, unidentified portfolio risks and weakened value chains.
Other key findings include:
- Intersecting climate and social vulnerabilities increase the severity and duration of losses, creating systemic rather than localised risks.
- Traditional financial models overlook feedback loops that can drive correlated losses across markets.
- Agrifood systems, responsible for nearly 30% of global emissions but receiving only 7% of climate investment, are among the most vulnerable and materially exposed sectors.
- Investments in adaptation, resilience and inclusive value chains can deliver compounding financial benefits, with every US$1 invested in adaptation generating up to US$10 in returns.
The report produced through CISL’s Investment Leaders Group (ILG), of which Rathbones, one of the UK’s leading wealth and asset management groups, is a member, calls for a shift in how risk assessments treat socio-economic factors in an era of compounding pressures to ensure they are joined up to understand the full accumulative impact. It introduces a new integrated, systems-based conceptual framework to help identify compounding risks and opportunities for increased resilience.
Kate Elliot is Head of Research at Rathbones Greenbank, Rathbones’ specialist responsible investment team. She said: “Investors are increasingly recognising that climate and social risks are deeply interconnected, and that failing to consider these linkages leaves portfolios exposed to systemic shocks. This report provides a practical framework for understanding how risks cascade through economies and supply chains, and – crucially – how investors can respond.
“At Rathbones, we see real value in supporting progress towards more resilient, inclusive and climate-aligned systems through our investment decisions and our engagement and stewardship activity. Supporting this work with CISL is part of our commitment to helping build a more stable and sustainable financial system.”
Rathbones played a central role in shaping the report, with Sophie Lawrence, Stewardship and Engagement Lead, and Kate Elliot serving on the ILG steering group that advised CISL throughout.
Rathbones’ contribution reflects Rathbones Greenbank’s longstanding leadership in responsible investment and stewardship. The firm has been an active advocate for more holistic, systems-level approaches to sustainability – recognising that climate, nature and social dynamics cannot be managed in isolation.
In November last year Rathbones underscored its commitment to creating long-term, values-driven wealth through responsible investment at its inaugural Group-wide Responsible Investment Summit in London.
