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MODELLING AND INVESTMENT SOLUTIONS FOR
CASCADING SYSTEMIC RISKS

We quantify climate, pandemic, and conflict (CPC) risks that cascade across systems to impact asset prices, and facilitate investments in resilient financial products.

Cascading systemic risks are overlooked

The world is in a very different place than 1952 when economist Harry Markowitz conceptualised the Modern Portfolio Theory (MPT) that won him a Nobel Prize.

 

This 70-year-old paradigm is breaking down. MPT posits that investors can deliver returns by diversifying idiosyncratic risks. But it overlooks systemic risks like climate change, which affect the entire system rather than the individual parts.

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U.S. Midwest Drought

The American midwest experiences severe droughts, resulting in record lows for both spring wheat and maize production.

E.U. Fertiliser Plant Shutdown

Record natural gas prices in 2022 lead to widespread fertiliser plant shutdowns in Europe.

Russia/Ukraine Conflict

Ukraine’s wheat and maize production have been slashed. Russian controls have been implemented on fertiliser and wheat, followed in suit by Belarus.

Indian Heatwaves

Heat waves hit the Indian subcontinent, affecting both wheat production and rice production.

Inflationary pressures due to wheat price spikes, continued elevation of oil and natural gas prices, and climate risks lead to the rise of global food prices. Resulting civil unrest cause state instability in Egypt.

If state instability disrupts the Suez canal, where 12% of global trade passes through, worldwide supply chains would be affected.

Hypothetical Scenario: 2023 Egyptian Food & Suez Crisis

Egypt

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Today, many institutional investors own large portions of the economy, which means they are highly exposed to systemic risks.

The next century will be defined by cascading systemic risk—the world's lack of resilience to climate change, pandemics, and conflicts (CPC risk). ​Events like COVID-19 and the Russia-Ukraine conflict illustrate how interlinked our systems are and how risks reverberate across systems.

 

The Intergovernmental Panel on Climate Change (IPCC) has highlighted that our world is already fragile. This will continue to worsen:

  • UN: 40% global deficit in water availability by 2030

  • NASA: Maize crop yields projected to decline 24% within 10 years

  • World Bank Groundswell report: 216 million displaced internal climate migrants by 2050

  • Nature (Journal): 15–37% of the species will be extinct by 2050

  • Climate Central: 300 million peoples' homes will fall below the elevation of an average annual coastal flood by 2050

How can financial institutions reduce these risks and increase resilience, when most lack the expertise to model them?

We quantify and reduce these risks, while increasing resilience

We offer solutions for asset owners, insurers, governments and financial regulators. Our interdisciplinary team has decades of experience in systemic modelling, product structuring, and disaster risk management.

Scenario Planning & Simulations

  • Create and analyse high-risk scenarios through Monte Carlo simulations & sensitivity analysis

  • Forecast and simulate realistic cascading effects

  • Facilitating risk-informed decision-making

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Cascading Systemic Risk Modelling

  • Model the impact of CPC risks

  • Quantify associated risks from natural, social, economic, and political systems

  • Understand direct and indirect impacts on your portfolio's conditional value on risk (CVaR).

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  • Mitigate CPC risk exposure and vulnerability

  • We offer financial products in resilience bonds and risk pooling

  • Enables financial return and alpha generation

Resilient Financial Products

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The Tipping Frontier™ Advantage

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Cutting-edge and scientifically rigorous

Our models utilise the latest peer-reviewed methodologies and models from the top scientific journals (Science, PNAS, Nature Climate Change) and translate them into fit-for-business analytics.

Comprehensive and robust

We integrate overlooked feedback loops, system interlinkages and cascading systemic impacts to showcase total effects on portfolios, modeling the full impact of CPC risks. These models are validated by extensive historical data and top experts in the field.

2

Flexible and user-friendly

We make it easy to seamlessly integrate your portfolio, stress test it with customisable scenarios, and access risk analytics through our web-based platform and APIs.

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