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Mercer's Responsible Investment Service
In 2004, Mercer formally launched a global business unit focused on RI and ESG issues, after years of providing advice to clients on these topics. Headquartered in Toronto, this unit now employs sixteen dedicated professionals in five offices around the globe. We work directly with leading responsible investors to develop cutting edge strategies and implementation plans. As well, our consulting work is increasingly undertaken in conjunction with colleagues from our investment consulting business so that we can provide truly integrated solutions to Mercer clients. To date, we have provided RI advice to national pension plans, corporate plan sponsors, foundations, industry bodies, and other significant institutional investors from around the world. Our team works with investors to make better investment decisions within a fiduciary framework: to enhance expected returns while managing risk and cost.
What is Responsible Investment?
Responsible Investment (RI) describes an investment process that incorporates an active consideration of environmental, social and corporate governance (ESG) factors within investment decision making and ownership practices. It is driven by the growing recognition among investors that responsible corporate behaviour can have a positive influence on the financial performance of companies – particularly over the long term. Investors who are aware of all factors that could affect investment performance are better placed to manage risk and generate value.
The evolution of Responsible Investment
RI has evolved from its roots in ethical investment, to a much broader field, including: sustainable investment; responsible investment; and shareholder engagement and activism.
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"First generation" was about negative screening (for example, excluding tobacco companies from portfolios). This was called "socially responsible" or "ethical" investment.
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"Second generation" evolved to include elements of positive screening, whereby "good" companies within each sector were rewarded.
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"Third generation" responsible investment is based on the philosophy that ESG or extra-financial criteria (for example, human capital, environmental, social and corporate governance factors) can have a positive affect on long-term corporate performance. Responsible investors should consider these factors within their investment analysis and shareholder engagement activities.
Why are institutional and corporate investors taking action?
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 Environmental, social and corporate governance (ESG) factors can be financially material
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Where ESG factors were once considered outside the realm of conventional investment decision making, they are now accepted as having a potentially material impact on financial performance and should therefore be embedded within the investment process.
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RI policies are consistent with good governance
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Having a process in place that ensures financially material ESG factors are captured within the investment process goes hand in hand with good governance.
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Lengthening the investment horizon enhances long-term value
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Increasingly, investors are concerned about “short-termism” within investment research, decision making and performance monitoring. A balance between capturing and monitoring short-term gains while protecting or enhancing long-term value needs to be established.
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Active ownership protects and strengthens investments
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Efficient capital markets are supported by high-quality relationships between owners and the entities in which they invest. Investors are increasingly utilizing active ownership tools, such as proxy voting, corporate dialogue and collaborative engagement, to protect and enhance shareholder value.
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