Investment Risk Management

𝗜𝗻𝘀𝘂𝗿𝗮𝗻𝗰𝗲 𝘄𝗶𝗹𝗹 𝗯𝗲 𝘁𝗵𝗲 𝗳𝗶𝗿𝘀𝘁 𝘀𝘆𝘀𝘁𝗲𝗺 𝘁𝗼 𝗰𝗿𝗮𝗰𝗸 𝘂𝗻𝗱𝗲𝗿 𝗰𝗹𝗶𝗺𝗮𝘁𝗲 𝗿𝗶𝘀𝗸 — 𝗮𝗻𝗱 𝗶𝘁 𝘀𝗵𝗼𝘂𝗹𝗱 𝗰𝗼𝗻𝗰𝗲𝗿𝗻 𝘂𝘀 𝗮𝗹𝗹. Natural disasters caused $𝟯𝟲𝟴 𝗯𝗶𝗹𝗹𝗶𝗼𝗻 in global economic losses last year, according to Aon — the ninth year in a row losses topped $300 billion. Only 𝟰𝟬% of those losses were insured. The protection gap is widening. As insurers retreat from high-risk regions, public safety nets — often overstretched — are stepping in. More households, businesses, and governments are being left to absorb risks they cannot afford. This isn’t just about insurance anymore. When insurance breaks down, so does credit. When credit dries up, property values fall, costs rise, and resilience weakens — just when it’s needed most. @Günther Thallinger 𝗳𝗿𝗼𝗺 𝗔𝗹𝗹𝗶𝗮𝗻𝘇 put it starkly: “𝘛𝘩𝘦𝘳𝘦 𝘪𝘴 𝘯𝘰 𝘤𝘢𝘱𝘪𝘵𝘢𝘭𝘪𝘴𝘮 𝘸𝘪𝘵𝘩𝘰𝘶𝘵 𝘧𝘶𝘯𝘤𝘵𝘪𝘰𝘯𝘪𝘯𝘨 𝘧𝘪𝘯𝘢𝘯𝘤𝘪𝘢𝘭 𝘴𝘦𝘳𝘷𝘪𝘤𝘦𝘴. 𝘈𝘯𝘥 𝘵𝘩𝘦𝘳𝘦 𝘢𝘳𝘦 𝘯𝘰 𝘧𝘪𝘯𝘢𝘯𝘤𝘪𝘢𝘭 𝘴𝘦𝘳𝘷𝘪𝘤𝘦𝘴 𝘸𝘪𝘵𝘩𝘰𝘶𝘵 𝘵𝘩𝘦 𝘢𝘣𝘪𝘭𝘪𝘵𝘺 𝘵𝘰 𝘱𝘳𝘪𝘤𝘦 𝘢𝘯𝘥 𝘮𝘢𝘯𝘢𝘨𝘦 𝘤𝘭𝘪𝘮𝘢𝘵𝘦 𝘳𝘪𝘴𝘬.” The Institute and Faculty of Actuaries (IFoA) project a 𝟱𝟬% 𝗰𝗼𝗹𝗹𝗮𝗽𝘀𝗲 𝗶𝗻 𝗴𝗹𝗼𝗯𝗮𝗹 𝗚𝗗𝗣 𝘄𝗶𝘁𝗵𝗶𝗻 𝗱𝗲𝗰𝗮𝗱𝗲𝘀 if climate risk is not properly managed. Climate risk is no longer a future scenario. It is here. It is compounding. And it is reshaping our economy in real time. There are positive signs: ➤ Hannover Re and Swiss Re are restricting fossil fuel underwriting. ➤ Parametric insurance models are speeding up disaster recovery. ➤ EIOPA and the European Central Bank are pushing for public-private risk sharing. These are encouraging — but early signs. 𝗠𝘆 𝘁𝗮𝗸𝗲: Climate risk is already disrupting the systems we rely on: insurance, credit, asset valuation, and public finances. Systems change is needed. The insurance sector holds a unique vantage point — but leadership now demands rethinking long-held assumptions about risk, resilience, and responsibility. The sector has an opportunity to lead: ➤ Embed forward-looking climate risk into underwriting ➤ Signal future exposures more transparently ➤ Drive transition finance to accelerate decarbonisation ➤ Redirect investment into adaptation ➤ Co-design shared risk pools and resilience bonds Collaboration between insurers, financiers, and governments is no longer optional — it is the foundation for economic stability in a climate-disrupted world. The sooner we align risk pricing with physical reality, the stronger our chances of building a more resilient economy for the future. #climaterisk #insurance #resilience #finance #sustainability #systemicrisk #adaptation –––––––––– For updates on sustainability, climate, and innovation, follow me on LinkedIn: @Scott Kelly

Yesterday's investor call lasted 12 minutes. (they only asked these 5 questions) They scanned past the usual suspects: - Carbon neutral by 2050 - Science-based goals  - Pretty charts - 2030 targets And went straight to: 🚨 "Show us your water stress map." Your water availability analysis for key sourcing regions. Because that Spanish tomato supplier you depend on? They're facing allocation cuts next season. 🚨 "What's your stranded asset timeline?" That new plastic packaging line you're installing has a 15-year depreciation. Meanwhile, EPR fees are doubling annually. They want to know when it stops being an asset and becomes a liability. 🚨 "How are you pricing climate volatility?" Fixed-price contracts assume predictable harvests. After 3 of the 5 worst UK harvests happened since 2020, investors know those assumptions are dead. They're calculating whether your procurement strategy survives 40°C summers. 🚨 "Where's your transition revenue?" They've seen companies turn carbon credits from regenerative agriculture into new income streams. Early movers are already offsetting transition costs through carbon farming partnerships. If you're not exploring this, you're leaving money on the table. 🚨 "What happens when your biggest customer demands Scope 3 data?" Last month, a brand lost its biggest retail account. The buyer asked for Scope 3 emissions data. They had a year to respond. They still didn't have it. The climate conversation changed… From 2050 targets to 2026 risks. From "doing good" to operational resilience. From carbon metrics to water, volatility, and stranded assets. You CAN’T impress investors by ambition anymore. They're looking for evidence you understand what's coming. P.S. Have you turned ANY climate risks into revenue opportunities?

Two important takeaways from Wednesday’s FOMC meeting were that 1) the Fed lowered its growth forecast and raised its inflation outlook, both actions consistent with our Regime Change thesis; and 2) the central bank also confirmed our call for an asynchronous cycle, especially given what we believe will be a bumpy "handoff" from government-led domestic growth towards a more global cycle led by AI capex, construction, and inventory investment recovery. This transition will likely require lower interest rates, a key reason that − despite a higher resting heart rate for inflation − we at KKR forecast two Fed cuts this year.   The good news for those investors looking for lower rates and a steeper yield curve is that the #FOMC appears more attentive to downside risks to growth versus upside risks to inflation. To this end, Chair Powell commented that households have “significant concerns about downside risks” to growth due to the ongoing trade war but raised the possibility that the Fed may look through a "transitory” spike in inflation due to higher tariffs. “Transitory” remains a taboo word for the Fed after 2021-23, so we think Chair Powell’s use of it here signals some notable comfort that things are under control. Regardless, we think he will be watching inflation expectations closely for signs that tariff-driven inflation is bleeding into the broader cycle.   Perhaps most importantly, the Fed opted to taper QT to just $5 billion from $25 billion starting in April, a change that we and the market had expected to come later in 2025. We take this as a helpful sign that the Fed is attuned to preserving market liquidity amid heightened equity volatility.   Bigger picture, we think moderating core services inflation and slowing (not cratering) growth will keep the long end under more control, which is really important for housing and market stability. The arrival of tariffs and the emergence of DeepSeek suggest that the U.S. will not maintain its dominance on global capital inflows. We continue to believe staying thematic helps during times of transition and uncertainty as there are many mega themes to invest behind including capital heavy to capital light, collateral-based cash flows, productivity and worker retraining, and the security of everything. Read more at https://go.kkr.com/41BTODe

🌡️ Another HOT news: April 2025 was the second-hottest April on record. Global temperatures rose 1.51°C above pre-industrial levels, and the 12-month period of May 2024 – April 2025 was 1.58°C above the pre-industrial level. 📊 According to the Copernicus ECMWF Climate Change Service (#C3S), sea surface temperatures remain abnormally high, Arctic sea ice is shrinking, and extreme weather is becoming the new norm—floods, droughts, and heatwaves continue to hit critical regions, from central Europe to the Americas, Australia, and Asia. 💼 how is this affecting business? 📉 Supply chains are increasingly vulnerable to #climate shocks—droughts and floods disrupt #agriculture, #energy, and #transportation. 🔒 Asset risk is rising—coastal infrastructure, industrial zones, and real estate are more exposed to extreme weather and sea-level rise. 📈 Insurance costs and premiums are spiking amid escalating loss events, forcing financial reassessments. 💰 Investor scrutiny is intensifying—businesses are expected to disclose climate risks and align with decarbonization pathways. ⏳ Regulatory and legal risks are growing as litigation over climate accountability increases. 🔍 Continuous monitoring of Earth’s climate system, as done by World Meteorological Organization, is not just science—it’s essential decision intelligence. The private sector must treat this data as a strategic input, not an externality. 📉 Climate change is not a future threat—it’s a present risk multiplier. The time to adapt, act, and transition is now. https://lnkd.in/eJqVzV5D

The January 31st FOMC meeting conveyed a message of patience, underscoring a desire to see continued improvement in inflation data before kickstarting a rate cutting cycle. In our view, the key for risk assets is the Fed’s willingness to (eventually) calibrate monetary policy in response to declining inflation (as opposed to cutting in response to a growth downturn).   For corporate credit investors, one notable pattern has been the sharp rebound in strategic M&A activity in 4Q2023, which we believe has been driven by clarity on the macroeconomic backdrop. By contrast, transaction volumes in the (interest rate sensitive) commercial real estate market have yet to recover.   Please see our Global Credit Weekly for more: https://bit.ly/3ulGWUW

Climate change is a future problem.” I hear this all the time. (Here’s why it’s actually a right now problem.) First, a mindset shift: Climate change isn’t just an environmental risk. It’s a financial risk. Let’s break it down. ➜ 1. Businesses are already losing $100 billion a year That number isn’t from a far-off projection—it’s happening right now in EBITDA losses. And if we don’t act, it’s set to exceed $1 trillion by 2035. You might be thinking: Where’s the impact today? Easy—look at infrastructure: 🚆 Network Rail lost 1.5 million minutes of operational time last year due to climate-related disruptions. 🌊 Water utilities are getting hit hard by flooding, leading to massive financial losses. 🛒 Supply chains are under pressure, impacting supermarkets, distributors, and ultimately, consumers. ➜ 2. This isn’t just about risk. It’s about opportunity. Protecting business assets means investing in resilient infrastructure—roads, railways, ports, airports. The companies that act now won’t just survive—they’ll thrive. Instead of seeing climate adaptation as a cost, smart businesses will treat it as an investment. ➜ 3. Want to understand the full picture? Check out the latest Accenture & World Economic Forum report—it breaks down the risks and the solutions. 💡 The question isn’t if businesses should act. It’s how fast they can move. How is your company preparing for climate-driven financial risks? #ClimateRisk #BusinessResilience #Sustainability #ClimateFinance #Infrastructure

𝐖𝐡𝐚𝐭 𝐡𝐚𝐩𝐩𝐞𝐧𝐬 𝐰𝐡𝐞𝐧 𝐜𝐥𝐢𝐦𝐚𝐭𝐞 𝐚𝐧𝐝 𝐟𝐢𝐧𝐚𝐧𝐜𝐞 𝐜𝐨𝐥𝐥𝐢𝐝𝐞? 🌍💸 In an earlier op-ed, I introduced the idea of a “disorderly transition” — a transition that unfolds not through steady foresight, but through sudden shocks (https://lnkd.in/eYqu_dqF). This new Forbes piece follows that thread further, tracing what happens when environmental stress meets financial fragility — when climate shocks cascade through insurance markets, property values, portfolios, and public finances. Each disruption begins locally — a fire, a flood, a drought — but rarely stays contained. Insurers withdraw, mortgages weaken, assets reprice, governments face fiscal strain. 𝐖𝐡𝐚𝐭 𝐛𝐞𝐠𝐢𝐧𝐬 𝐚𝐬 𝐰𝐞𝐚𝐭𝐡𝐞𝐫 𝐛𝐞𝐜𝐨𝐦𝐞𝐬 𝐟𝐢𝐧𝐚𝐧𝐜𝐞. 𝐀𝐧𝐝 𝐰𝐡𝐚𝐭 𝐛𝐞𝐠𝐢𝐧𝐬 𝐚𝐬 𝐟𝐢𝐧𝐚𝐧𝐜𝐞 𝐛𝐞𝐜𝐨𝐦𝐞𝐬 𝐬𝐨𝐜𝐢𝐚𝐥 𝐬𝐭𝐫𝐞𝐬𝐬. We are already seeing the early signs of this chain reaction. Insurers in high-risk regions are pulling back, premiums are rising sharply, and sectors once viewed as stable — from real estate to utilities — are now exposed to abrupt repricing. 𝐂𝐥𝐢𝐦𝐚𝐭𝐞 𝐫𝐢𝐬𝐤 𝐢𝐬 𝐚𝐜𝐭𝐢𝐧𝐠 𝐚𝐬 𝐚 𝐟𝐢𝐧𝐚𝐧𝐜𝐢𝐚𝐥 𝐚𝐜𝐜𝐞𝐥𝐞𝐫𝐚𝐧𝐭, 𝐝𝐫𝐚𝐠𝐠𝐢𝐧𝐠 𝐭𝐨𝐦𝐨𝐫𝐫𝐨𝐰’𝐬 𝐯𝐮𝐥𝐧𝐞𝐫𝐚𝐛𝐢𝐥𝐢𝐭𝐢𝐞𝐬 𝐢𝐧𝐭𝐨 𝐭𝐨𝐝𝐚𝐲’𝐬 𝐦𝐚𝐫𝐤𝐞𝐭𝐬 𝐚𝐧𝐝 𝐛𝐚𝐥𝐚𝐧𝐜𝐞 𝐬𝐡𝐞𝐞𝐭𝐬. An orderly transition depends on credible signals and gradual shifts of capital. A disorderly transition begins when those signals falter — when systems absorb pressure faster than they can adapt. ⚡ For leaders, the strategic question is not whether the transition will happen, but how to navigate its speed and instability. Resilience now means designing markets and institutions capable of absorbing shocks — before fragility dictates the terms of change. Ultimately, the “disorderly transition” is more than a description of risk; it’s a lens on system design. 𝐂𝐚𝐧 𝐰𝐞 𝐚𝐥𝐢𝐠𝐧 𝐜𝐥𝐢𝐦𝐚𝐭𝐞 𝐟𝐨𝐫𝐞𝐬𝐢𝐠𝐡𝐭 𝐚𝐧𝐝 𝐟𝐢𝐧𝐚𝐧𝐜𝐢𝐚𝐥 𝐬𝐭𝐚𝐛𝐢𝐥𝐢𝐭𝐲 𝐛𝐞𝐟𝐨𝐫𝐞 𝐜𝐫𝐢𝐬𝐢𝐬 𝐟𝐨𝐫𝐜𝐞𝐬 𝐭𝐡𝐞 𝐚𝐥𝐢𝐠𝐧𝐦𝐞𝐧𝐭 𝐟𝐨𝐫 𝐮𝐬? 🌱 👉 Read the new Forbes op-ed here: https://lnkd.in/eP8TUguU #Sustainability #ClimateFinance #SystemicRisk #Resilience London Business School Jo Luzmore Christopher Moseley, MCIPR Felicity Glennie Holmes Christopher Caldwell John Elkington Louise Kjellerup Roper Scott Newton Andrew Winston Nawar Alsaadi, FSA, SIPC Sasja Beslik Dr Ahmed Shawky Tina Mavraki CFA Georg Kell Sam Baker Pascual Berrone Donato Calace Marjella Lecourt-Alma Carolina Minio-Paluello, PhD Cristian CITU Daniel Aronson Gillian Marcelle, PhD Stern Strategy Group Rachael De Renzy Channer Marcin Kacperczyk Emilio Marti Leandro Nardi Rodolphe Durand

You can't treat every forecast the same. More uncertainty means more risk, and you want to deal with it correctly. After building forecasting models at P&G, Unilever, and Squarespace, I've learned there are three ways to manage uncertainty: 𝟭) 𝗔𝘃𝗼𝗶𝗱 𝗔𝘀𝘀𝘂𝗺𝗽𝘁𝗶𝗼𝗻 𝗦𝘁𝗮𝗰𝗸𝗶𝗻𝗴 The more uncertainty, the fewer assumptions you should include. Why? Because if you add multiple variables on top of each other, their margin of error multiplies. If you base the forecast on many assumptions, it's nearly impossible to determine which one was accurate and which wasn't. So, keep your models as simple as possible. Isolate the variables. You can always add additional assumptions later once you better understand the correlations. 𝟮) 𝗥𝘂𝗻 𝗪𝗵𝗮𝘁-𝗜𝗳 𝗔𝗻𝗮𝗹𝘆𝘀𝗶𝘀 It's your job as a finance leader to quantify the risk of a forecast. The easiest way to do that is by changing individual inputs and noting how much impact that has on the forecast. For example, if a 5% price change affects the revenue forecast by 25%, that's a major risk you'll need to call out. 𝟯) 𝗦𝗵𝗼𝘄 𝗮 𝗥𝗮𝗻𝗴𝗲 Sometimes analysts make the mistake of assuming ranges make it look like they aren't confident in their forecast. But a well-measured range is critical for two reasons: One, it shows the order of magnitude of risk. Your CFO knows what's a conservative estimate to communicate to investors. Two, it enables scenario planning. Leaders can plan contingency measures if results are at the lower end of the range. 𝗜𝗻 𝘀𝘂𝗺, 𝘁𝗼 𝗺𝗮𝗻𝗮𝗴𝗲 𝘂𝗻𝗰𝗲𝗿𝘁𝗮𝗶𝗻𝘁𝘆 𝗶𝗻 𝗮 𝗺𝗼𝗱𝗲𝗹: 1. Reduce the number of assumptions 2. Estimate the risk by running sensitivity analysis 3. Provide ranges instead of point estimates Which approach do you find most useful? Comment below 👇 -Christian Wattig 📌 Get my 𝗙𝗶𝗻𝗮𝗻𝗰𝗶𝗮𝗹 𝗠𝗼𝗱𝗲𝗹𝗶𝗻𝗴 𝘁𝗲𝗺𝗽𝗹𝗮𝘁𝗲 + 𝟰𝟲 𝗯𝗲𝘀𝘁 𝗽𝗿𝗮𝗰𝘁𝗶𝗰𝗲𝘀 (free) here: https://lnkd.in/eBAmSF_6 

It’s Not What You Earn, It’s When You Earn It Most people think that if two investors get the same average return, they should end up with the same result. But if you’re withdrawing money to live on, the timing of returns matters as much as the average. This is called sequence of returns risk. The Setup Both start with £250,000. Both withdraw £2,000 a month (£24,000 a year). Both invest for 10 years. Both average 15% returns. So, same inputs = same outcome, right? Wrong. Lucky Joe (Strong Early Years) Joe’s portfolio grows fast in the early years. By the time the weaker years arrive, he has a cushion. ➡️ After 10 years, Joe still has £225,000 left. Sad Sally (Weak Early Years) Sally faces losses upfront, when her pot is largest and withdrawals hurt the most. Even strong returns later can’t catch her up. ➡️ After 10 years, Sally has only £158,000 left. The Lesson Same average return (15%). Very different outcomes: Joe is ahead by nearly £70,000. This is the power - and danger - of sequence of returns risk: 📉 Early losses can cripple a retirement portfolio. 📈 Early gains can protect it. Think of two runners averaging the same speed. Joe runs downhill first, Sally uphill first. Same “average,” very different results. Why It Matters for Retirees You can’t control markets, but you can control how you prepare: . Diversify across assets. . Avoid taking unnecessary risk. . Keep a cash buffer for withdrawals in down years. . Be flexible with your spending. It’s not just about the return you earn. It’s about when you earn it.

“Fear is Rarely a Good Master” This phrase jumped out at me from a fascinating conversation I had yesterday with a client in which we were discussing how to improve project delivery. It’s had me thinking ever since… such a simple phrase yet it perfectly encapsulates how fear, while sometimes seen an immediate motivator, is not a sustainable or effective way to drive success. When fear dictates decision-making, teams become hesitant and risk-averse. Instead of focusing on innovation, they prioritise avoiding mistakes, which can stifle creativity and lead to stagnation. In rapidly changing environments, failing to embrace new ideas can mean falling behind. Moreover, fear-based leadership erodes trust. Employees who fear repercussions for mistakes are less likely to share ideas, challenge assumptions, or take initiative—hindering both personal and organisational growth. To create an environment where teams thrive, leaders should: - Encourage Psychological Safety: Ensure people feel safe sharing ideas and feedback without fear of judgment or punishment. - Reward Creativity: Recognise and support innovation, even when ideas don’t always succeed. - Learn from Failure: View mistakes as opportunities for growth rather than as reasons for reprimand. Leaders set the tone. By demonstrating a willingness to take calculated risks and embrace learning, they inspire teams to do the same. Replacing fear with empowerment fosters motivation, resilience, and long-term success.