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With trillions of dollars of identified investment risks and opportunities still hanging in the balance, more than half of the participants in the 2011 “Climate Change Scenarios – Implications for Strategic Asset Allocation” collaborative study, led by Mercer, are taking or planning action related to its findings. These are the findings of Mercer’s follow-up report, “Through the Looking Glass - How Investors are Applying the Results of the Climate Change Scenarios Study”.
Among the 12 investors who participated in the follow-up survey, representing almost $2 trillion in assets under management, key findings include:
- More than half of project partners have decided to include climate change considerations in future risk management and/or strategic asset allocation processes
- 50% of project partners have undertaken or plan to make changes to their actual asset allocations
- 80% of partners have or will increase their engagement on climate change with companies and policy makers
- One-third of project participants have begun to or plan to allocate more to “climate sensitive assets” (identified in the report as real estate, infrastructure, private equity, sustainable equities (listed and unlisted), efficiency/renewables (listed and unlisted) and commodities (including agricultural land and timberland)
- More than half of participants either have, or plan to review, climate risks within climate-sensitive asset classes identified in the report
Jane Ambachtsheer, Global Head of Responsible Investment for Mercer who launched the report at the Investor Network on Climate Risk Meeting (INCR) and Investor Summit on Climate Risk and Energy Solutions, held in New York said, “We are encouraged to see that partners have clearly made efforts to understand and act on the findings from our climate change report. As expected, priorities and areas of focus differ among the partners, and in some cases, the findings have been used to support decisions which were already under consideration, such as an enhanced allocation to infrastructure investments.”
Helga Birgden, Head of Responsible Investing for Asia Pacific at Mercer, said there is still a long road ahead both globally and locally.
“The recent climate negotiations in Durban suggest that we are a long way off from seeing strong, internationally coordinated action on climate policy, and this creates a significant investment risk for the foreseeable future,” Ms Birgden said.
“However, Australia’s decision to adopt a carbon tax now means that investors in our region are required to recognise capital market signals associated with climate change entailing costs and prudent risk management.
“Mercer will continue to provide clients in Australia and New Zealand with forward looking, strategic advice and solutions to help address long-term risks and opportunities associated with climate change,” she said.
The initial Climate Change report highlighted that Australia and the Pacific Region is particularly vulnerable to climate change risks, and the latest report includes a case study of AustralianSuper’s response to the findings.
The fund decided to take early action and mitigate the risks, by analysing its current asset allocation and reviewing the climate change risks across various asset classes in its portfolio. This analysis is designed to reduce the impact of climate change on the Fund’s investment portfolio and protect the Fund’s assets.
Findings from the Looking Glass report show that many investors are still digesting the research from the initial report. Participant education of boards on the report’s conclusions and policy implications is currently about 50% complete. Many partners indicate that in the near term, they are focused on training asset class teams about the study, as well as leveraging the asset class and regional-level findings in order to develop a deeper understanding of climate change risks and opportunities in existing and future investments and engagements.
About the “Through Looking Glass” report
Following the publication of the Climate Change Scenarios report in February 2011, each partner fund received an individual report providing analysis and recommendations tailored to their fund. After delivering these reports, Mercer held telephone discussions with participants using a structured interview guide to gain feedback on their experience in the collaboration and get a sense for the actions that participants have already, will or may take as a result of the findings and recommendations put forth. The “Through the Looking Glass” report features findings from these discussions, and presents the aggregate results of the survey along with more detailed individual case studies of specific actions taken by project partners.
To download a full copy of the report visit http://www.mercer.com/climatechange.
About the Climate Change Scenarios report
The report Climate Change Scenarios – Implications for Strategic Asset Allocation, issued in February 2011, analyzed the potential financial impacts of climate change on investors’ portfolios, identified through a series of four climate change scenarios playing out to 2030. The report identifies a series of pragmatic steps for institutional investors to consider in their strategic asset allocation. In the report, a framework is outlined that can be used by institutional investors to enhance their understanding of climate-related investment risks and opportunities across asset classes and regions. Mercer’s “TIP Framework” estimates the rate of investment into low carbon technologies (T), the impacts (I) on the physical environment and the implied cost of carbon resulting from global policy (P) developments across the four climate scenarios.
Mercer Responsible Investment business provides research and advice on the integration of environmental, social and governance (ESG) factors within investment decision making. For more information visit www.mercer.com/ri
Mercer is a leading global provider of consulting, outsourcing and investment services. Mercer works with clients to solve their most complex benefit and human capital issues, designing and helping manage health, retirement and other benefits. It is a leader in benefit outsourcing. Mercer’s investment services include investment consulting and multi-manager investment management. Mercer’s 20,000 employees are based in more than 40 countries. The company is a wholly owned subsidiary of Marsh & McLennan Companies, Inc., which lists its stock (ticker symbol: MMC) on the New York and Chicago stock exchanges.