Strengthening Investment Portfolios through Resilience – A Primer

Abstract

Traditional investment paradigms fall short in the current era of interconnected challenges, which include rapid technological shifts, geopolitical changes, and environmental pressures. In this new polycrisis regime, it is imperative to adopt scenario thinking and build resilience to strengthen investment portfolios. Conventional investment models, which were previously considered adequate, are now insufficient, and we are facing a resilience gap at both the corporate/asset level and the portfolio level. To address this issue, this paper advocates for an adaptive investment strategy that emphasizes the importance of resilience thinking. We suggest departing from narrow financial models and instead evaluating outcomes, understanding externalities as real options, and assessing company resilience. Additionally, active ownership plays a crucial role in enhancing portfolio resilience. Our goal is to contribute to the development of a resilient investing framework that enables investors to navigate current challenges and anticipate future uncertainties effectively. However, further research is necessary to create a more comprehensive approach to resilient investing.

Keywords: investing; resilience; sustainable investing; sustainable finance

JEL Classification: G11