Cyber security, privacy, automation, and artificial intelligence (AI) are the greatest risks to and opportunities for investments over the next 10 years, a major study of industry views has found.
Technology will reshape the industry, presenting risks to system stability, but also driving productivity and economic growth, according to a joint report by Willis Towers Watson and the Principles for Responsible Investment (PRI).
Technological advances is the biggest ‘megatrend' - macro forces that are expected to transform businesses, marketplaces and society - for the next decade, closely followed by society and demographics and environmental challenges.
The research, published in Responding to megatrends, was conducted across a range of asset owners, asset managers and service providers in the Americas, Europe and Asia Pacific, with a mixed range of assets under management. It included surveys and telephone interviews with representatives of 300 investment institutions.
Only small asset owners dissented by believing society and demographics will be the biggest megatrend.
Within the technological advances megatrend, the majority agreed cyber security and privacy ranked as the top sub-trend affecting their investment decisions, while Latin America said it would be automation and AI.
Willis Towers Watson global head of asset research David Hoile said understanding the trends would strengthen investment decisions.
"It is increasingly apparent that these megatrends, and the ability to understand and manage them, should form part of all institutions' investment processes," he said. "This report providers an important indication of the key megatrends affecting global investment institutions.
"A deeper insight into the risks and challenges facing investment institutions is crucial to building resilience and creating opportunities."
These trends need to be fed into investment processes, 80% of respondents added, as they will "exert an accelerating influence on financial and social outcomes out the coming decade".
Out of 10, technological advances was expected to have the most severe impact, with a score of 7.9, and also to be the most difficulty to manage at 6.6. It will also grow in impact over the next decade, with a 4.4 out of 5 score.
PRI managing director Fiona Reynolds said the results were unsurprising given previous analysis.
"It's not surprising to see environmental concerns featuring so highly in the list as they have figured in the top concerns of the World Economic Forum's Global Risks Report," she said. "The widening economic inequality gap, which is a barrier to creating sustainable markets, is also one of the most pressing challenges we face, today."
Of the sub-trends, a transition to a low-carbon economy; public sector finance pressures and policy responses; inequality, populism and conflict; and information and communication flows, were seen to have the most severe impact and difficult to manage.
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