IAPF Spring 2018 Irish Pensions Magazine

IRISH PENSIONS MAGAZINE | SPRING 2018 | 9 EXPERT OPINION 2. The growing need to look beyond immediate earnings to deliver returns The drivers of investment returns are changing: different strategies and processes are needed to generate returns. Acornerstone of fundamental investment is building models to forecast earnings and using those forecasts to find companies whose earnings themarket misjudges. Highly skilled analysts and deep insight can uncover mispriced opportunities. However, that formula – even correctly applied – is becoming less rewarding on average. A rebalancing of the relationship between profits and what is considered sustainable seems inevitable. The imposition of costs and refocusing of growth across global industries will drive changes in profit pools with inescapable impacts on investment returns. We don’t see how those impacts can be properly considered without bringing together sustainability insights, fundamental industry knowledge and a commitment to combine them. Figure 1: Sustainability has moved up corporate agendas – Top four global risks identified by WEF members in its annual survey Source: World Economic Forum. http://www3.weforum.org/docs/WEF_GRR18_Report.pdf