Assessing Social Investment Risks and Opportunities

Assessing Social Investment Risks and Opportunities

Arun Kelshiker

20 years: Asset management and stewardship

In this video, Arun explores the significant influence of material social factors on investments, ranging from globalisation and AI to inequality and changing demographics. He explains how to identify these factors at the country, sector, and company levels, recognising unique investment opportunities such as healthcare in Japan and telecommunications in India.

In this video, Arun explores the significant influence of material social factors on investments, ranging from globalisation and AI to inequality and changing demographics. He explains how to identify these factors at the country, sector, and company levels, recognising unique investment opportunities such as healthcare in Japan and telecommunications in India.

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Assessing Social Investment Risks and Opportunities

10 mins 11 secs

Overview

Material social factors greatly influence investments. Key elements include globalisation, AI, inequality, digital disruption, and changing demographics to name a few. Their impact varies across countries, sectors, and companies. For instance, Japan's ageing population suggests healthcare investments, while India's urban growth points to telecommunications opportunities. Government mandates, such as the UK's Modern Slavery Act, emphasise corporate responsibility. It's crucial to recognise that neglecting social factors can impact profitability. Thus, when conducting investment analyses, it's essential to integrate risk assessments related to social factors, evaluate management quality, and employ precise financial modelling. Efficiently managing these factors often signifies robust stakeholder relations. Additionally, financial forecasts and risk profiles should be adjusted to account for potential social risks.

Key learning objectives:

  • Understand how to identify material social factors in investment opportunities

  • Understand how to integrate social factors into investment decisions

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Summary
How can material social factors be identified in investment opportunities?
Identifying material social factors in investment opportunities requires a multi-layered approach. At a country level, one should consider aspects like demographic shifts, economic progression, and local regulatory structures. For example, an ageing population in Japan might signal potential in healthcare investments. At the sector level, understanding industry-specific challenges and opportunities, such as technological advancements in transportation or inherent risks in manufacturing, is essential. Furthermore, on a company level, the organisation's culture, operational strategies, and governance play pivotal roles. Older firms may handle social risks differently than startups, and understanding this dynamic aids in discerning investment potentials.

How can social factors be integrated into investment decisions? 
Integration of social factors into investment decisions is a systematic process. Initially, a comprehensive risk assessment needs to be conducted, focusing on how potential investment candidates, across various sectors and geographies, are impacted by these social factors. For instance, the mining industry might face heightened risks related to human rights. Following risk assessments, the evaluation of management quality is crucial. Investors should analyse how companies manage social factor-related risks and opportunities in comparison to their peers. This includes reviewing policies, strategies, and performance indicators. Lastly, in financial modelling, analysts should embed potential impacts from social factors, adjusting financial projections and risk metrics. This might involve scenario analysis that factors in potential liabilities from issues like human capital management or supply chain challenges.

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Arun Kelshiker

Arun Kelshiker

Arun Kelshiker was formerly the Head of Asset Allocation and Portfolio Strategy at Standard Chartered Bank and part of the bank's Global Investment Committee, where he provided investment advisory and multi-asset portfolio solutions. His focus is now with Cambridge Sustainable Investment Partners, which draws its expertise from the Resilience and Sustainable Development Centre at Cambridge University. He is also a university lecturer at the Frankfurt School of Finance and Management and is Vice Chair of the CFA UK's Inclusion and Diversity Committee and its Investment Committee.

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