Responsible Investment (RI) is focused on the integration of environmental, social & corporate governance (ESG) risks and opportunities into the investment process, along with the exercise of active ownership (voting and engagement). RI champions sustainable investment approaches that consider these ESG risks and opportunities, recognising their material impact on long-term risk and return outcomes.
Looking at investment through an RI lens offers an investment view that is more likely to create and preserve long-term value. This is an important touchpoint within Mercer’s investment beliefs. It ensures the viability and sustainability of value, not just over the next five or ten years, but over the next 20, 30 or 50. Taking a long-term view is never easy, especially when short-term demands require so much consideration and compete for the attention of already stretched resources. It involves challenging the status quo, questioning how capital could be better allocated and utilised, and considering what risks might emerge in the future.
Mercer has been at the forefront of this important aspect of investing since forming a dedicated global team of RI specialists in 2004.
Our RI team’s thought leadership, innovation, advice and research helps Mercer’s clients and our own portfolio managers mitigate risk, demonstrate active ownership, and construct investment portfolios targeting long-term returns and sustainable growth. The team also helps those investors seeking greater alignment between their organisation’s values, policies, and investment allocations. It seeks to challenge current thinking and always think long-term to anticipate and drive beneficial change. In short, our RI team helps shape and set the ESG agenda for investors around the world.
Our research and innovative thinking in this area dovetails with our broader Mercer Governance Practice Solutions and Mercer’s industry engagement with highly-regarded groups like the World Bank Group’s International Finance Corporation (IFC) and the Investor Groups on Climate Change (IGCC).
Mercer’s Investment Framework for Sustainable Growth
Mercer’s Investment Framework for Sustainable Growth outlines how we work with our clients in each stage of the investment process, from beliefs and policy, to processes and portfolio. Whatever your beliefs, can you express and stand by them? Mercer helps Boards and investment teams review, agree on, understand and articulate their beliefs, investment policies and processes to guide future decision making and remain alert to ESG factors. Mercer can also help construct a sustainable investment portfolio that will be rolling along years from now.
|Beliefs||Policy & Process||Portfolio|
|What do you believe? Is climate change a real investment risk? Whatever your beliefs, can you express and stand by them? Mercer helps Boards and Chief Executive teams review, agree on, understand and articulate their beliefs.||Investment policies and processes have traditionally lacked a signaling system to alert investors to the environmental, social and corporate governance (ESG) factors to consider to stay on track.||
How to construct a sustainable investment portfolio that will be rolling along years from now? Mercer’s ESG ratings and themed strategies targeting long-term returns help narrow the field on additional risk and opportunity insights.
The Pursuit of Sustainable Returns
As per Mercer’s investment framework for sustainable growth, sustainable investment returns for a portfolio need to consider how ESG and sustainability themes are integrated by asset class. Incorporating investments that reflect a greater level of ESG integration or sustainability themes into the asset allocation framework is an area in which we’ve seen growing interest. We believe regulatory pressures to meet global standards of ESG integration and responsible stewardship will only increase in coming years and we therefore see this as an area of increasing importance over the long term for all investors.
Mercer has developed a complete portfolio reference guide, which outlines all the drivers for addressing sustainable growth trends at a portfolio level for each major asset class. The Pursuit of Sustainable Returns summary of this complete guide is accessible at right.
Over a Decade of Innovation and Research
Mercer has been leading the field in sustainable investing since 2004. Our RI team has a long history of innovative research, developing new tools and processes, and partnering with industry leaders. We examined sustainability trends with our seminal 2011 study examining the strategic asset allocation implications of climate change and returned to build upon that knowledge with the groundbreaking Investing in a Time of Climate Change study that confirmed climate change as an investment risk that could no longer be ignored, and contributed to the discussions leading to the December 2015 Paris Agreement. We have championed governance, as with our 2013 report on building a long-term shareholder base through loyalty-driven securities, and we’ve led in the area of ESG integration, assigning explicit ESG ratings across all asset class strategies as part of our manager research process.
Jane Ambachtsheer ‘in person’
The PRI in Person team caught up with Jane Ambachtsheer to reflect on a decade of Mercer RI.
Investing in a Time of Climate Change
How could economic, environmental, technological, societal, and geopolitical issues impact the ability to meet return objectives? What steps can be taken to mitigate risks or capture opportunities accordingly?
THE FUTURE MAKERS
Long Term Investors as Climate Change ‘Cops’
Investors can take specific actions right now to make their investment portfolios more resilient. These investors can be described as “future makers.”
THE CLIMATE CHANGE VARIABLE
What’s the impact on Investor portfolios?
The investment portfolios of institutional investors of all types will be affected, including insurers, corporations, pension funds, endowments and foundations, as well as individuals. Learn how they will be affected.
Modeling Asset Sensitivity to Climate Change
Existing modeling does not capture very long-term structural changes, precisely the type expected as the world manages the risks posed by climate change.
CLIMATE CHANGE SCENARIOS
Scenarios and the Goal of Transformation
The year is 2050. Investors, business, governments, and civil society have worked collaboratively and with success to mitigate the long-term effects of climate change. This is what a Transformation scenario looks like.
CLIMATE CHANGE RISK FACTORS
Bringing the Long-Term into Closer, Sharper Focus
Imagine the investable universe could be examined through a telescope. The simplest scope might give you a better view of the more obvious risks and opportunities but professional investors need more sophisticated systems of lenses allowing for greater magnification.
Investor Action On Climate Risk
What are the key motivations for investor action and what should that action look like? These are among the questions investors need to be asking.