Building the future of the institutional investment industry.

NAV Shapes

How can investors manage the uncertain transition to net zero?

A shared vision - AMX and Carne Group

NAV Shapes
LATEST INSIGHTS

Brains, bats and blindness – using neuroscience to think about TCFD climate reporting

, Jonathan Greenwold

SHARE

Brains, bats and blindness – using neuroscience to think about TCFD climate reporting

SHARE

Modern neuroscience tells us that our interactions with the world are based on a model built by our brains rather than objective external inputs. The brain is locked inside a black box. What we think we see, smell, hear and touch isn’t reality ‘as it is’ but instead reflects electro-chemical signals generated by the brain. Jonathan Greenwold explains more about the science behind this phenomenon and how to expand your investment sensory capabilities. 

 

We humans are only aware of a small strip of reality. For example, the light waves we see form just one part of the electromagnetic spectrum. The rest of the spectrum — radio waves, microwaves, infrared, ultraviolet, x-rays, gamma rays — are invisible to us. We just don’t have the right biological receptors. But that’s not true of other animals. Snakes, for example, can see infrared, honeybees can see ultraviolet and bats use sonar to hunt their prey through echolocation.

 

Bats, bees and (human) brains

 

Scientists describe the slice of our ecosystem that we can detect as our umwelt (German for environment/surroundings) — this is created by an interaction between the outside world, our sensory organs and our brains. We perceive our umwelt as the entire objective reality but in fact it’s a very incomplete picture. If you were to explore a garden alongside a bat, snake or bee you would experience a very different reality from those creatures. What this means, Stanford University neuroscientist David Eagleman* argues, is that the brain can be rewired to perceive entirely new senses. 

 

We can harness the brain’s ability to adapt (neuroplasticity) to build devices that expand our umwelt and feed that extra information from our environment directly into our brains. Eagleman calls this the ‘Potato Head’ model– you can plug new inputs into the brain just like with the plastic toy. In fact, this is something that is already happening. A wearable wristband has been developed that allows deaf people to sense sound through their skin. The wristband picks up sounds and translates them into patterns of vibration via motors on the user’s wrist. The wristband can create over 29,000 unique patterns based on a sound’s intensity and pitch. Sensory substitution has also been used to allow blind people to ‘see’ with their tongue. The scientist Paul Bach-y-Rita** developed a ‘BrainPort’ that turns visual data from a camera into pulses on the user’s tongue.   The brain learns to interpret and use the information from the tongue as if it were coming from the eyes – they call it ‘tactile vision’.


Expanding your perception

 

Not only can we use neuroplasticity to replace lost senses, we can also expand our perceptions to take in completely new information, known as sensory addition. For example, David Eagleman has been experimenting with infrared sensors that allow the wearer to ‘feel’ infrared light. Similarly, work has been done with drone orientation so that as the pilot is flying the drone they feel as if they've stretched their skin in that direction. They're at one with the drone, feeling the data directly from the drone. That allows them to fly in the fog or the dark because they know what the drone is ‘feeling’. That's sensory addition – it’s creating an entirely new sense to enrich your perception of the world.

 

There’s an interesting analogy here with investment management and portfolio analysis. Investment portfolios contain a vast trove of data, but we are often limited in our understanding by the ‘senses’ we have to perceive and analyse the data. Just like a human has eyes, ears, smell, touch and taste, in the investment space we have a basic set of ‘senses’ – investment returns, value at risk, volatility, sector exposure, liquidity, the ‘greeks’ etc. Wouldn’t it be useful if we could expand the senses at our disposal to get a richer, more multi-dimensional view of our portfolios? 

 

An extra dimension – the demands of climate risk

 

In fact, in many ways this extra dimensionality is being asked of us through initiatives like the Financial Stability Board’s Taskforce for Climate-related Financial Disclosures (TCFD).  Climate risk is an additional ‘sense’ which pension trustees are now having to acquire. Under the UK TCFD rules, pension fund trustees need to:

  • Understand the scope 1, scope 2 and scope 3 greenhouse gas emissions of their scheme assets
  • Obtain portfolio and benchmark data to calculate other selected metrics like weighted average carbon intensity, carbon footprint, total carbon emissions and the proportion of the portfolio invested in low emissions activities
  • Use these metrics to identify and assess their scheme’s climate-related risks and opportunities
     

So, if you’re a pension fund trustee how do you acquire an entirely new ‘sense’ - and if you’re an asset manager how do you help your pension investors in that context?  In other words, how do you expand your investment sensory capacities to include these new climate risks and opportunities? 

 

This is where AMX Zero comes in – a solution that helps you plug new information into your ’investment brain’ so that you and your organisation can understand the climate related factors in your portfolios. 

 

AMX Zero – your climate disclosure solution

 

AMX Zero provides a user-friendly way to calculate climate metrics, empowering asset owners to manage a large amount of data from multiple sources in a consistent, transparent, streamlined and efficient way.  It’s powered by our technology platform -  AMXConnect -  a comprehensive reporting and collaboration tool that eliminates the need for spreadsheets, Word documents, email, and other piecemeal tools. With AMX Zero, everything is all in one place and available online.

 

Just as the human brain can be rewired to perceive entirely new information in the outside world, you can also rewire your investment brain to perceive climate risk, using AMX Zero

 

Sources: 
*https://eagleman.com/ 
**WikipediaPaul Bach-y-Rita


Continue Reading

Five reasons to consider Common Contractual Funds

Aaron Overy,

Kevin Duggan,

right-arrow-icon

Create time for what is important

Ben Van Den Tol,

right-arrow-icon

© 2022 AMX. Rights reserved.