The question is one of the most compelling to emerge from Davos this year because its implications are so provocative for long-term investment institutions. 

Additional ways of asking it include: 

• Is our job to observe financial markets or to create real economies? 
• Are there parameters beyond just the law for how we earn our target return, or are we free to take whatever markets give us, irrespective of the consequences for society? 
• Are markets sufficiently efficient, or are they so inefficient that meaningful mispricing can persist for a long time?  

Resilience is the commonality among all of these questions. Long-term institutions reserve capital, in one way or another, for their own resilience when they have to withstand J-curves induced by mispricing and especially when that mispricing is the result of their own efforts to influence economies – in other words, when they think of themselves as holding business, not just paper. 

If this sounds too abstract, think about climate change.  

Long-term institutions agree with near unanimity that carbon use and GHG emission are – and always have been – mispriced. Many are now responsible for meeting investors’, clients’, or sponsors’ higher expectations to participate in financing a transition. 

Institutional investors approach these climate trends in several ways, ranging from silence to catalyst, and those same approaches apply to the many other trends, disruptions, and uncertainties that still are becoming familiar: 

• Public-health preparedness 
• Renewed attention to righting societal injustices 
• Geo-economic cycles from rates to globalization 
• Massive shifts in population growth around the world 

The path will be bumpy, but the end result of that transition will be the creation of lower-carbon economies. Businesses – real-world enterprises – are the instrument of this transition much more than the various stocks and bonds that they issue.