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Leading institutional investors address climate change risk via asset allocation, other initiatives


United States , New York


 

 

With the 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 actions related to its findings, according to a Mercer follow-up report and case studies entitled, “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, who represent 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


The Mercer “Through the Looking Glass” report was issued as part of the Investor Network on Climate Risk Meeting (INCR) and Investor Summit on Climate Risk and Energy Solutions, held today and tomorrow in New York and presented by the Investor Network on Climate Risk, a project of Ceres. 


Jane Ambachtsheer, Global Head of Responsible Investment for Mercer and a featured speaker at the INCR meeting 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.”


Ms. Ambachtsheer added, “The outcomes from the recent climate negotiations in Durban suggest that strong, internationally coordinated action on climate policy is some ways off, with a new binding agreement not expected to be in place until 2020. This delayed action positions climate policy as a significant investment risk for the foreseeable future. For its part, Mercer will continue to offer forward looking, strategic advice and solutions to help our clients address long-term risks and opportunities associated with climate change.” 


“CalPERS has identified and adopted climate change as a priority theme, and we are implementing a number of actions which are consistent with the findings of the study,” said Anne Simpson, Senior Portfolio Manager for Corporate Governance.  “As a dedicated member of Ceres, we believe that the Mercer reports and the UN Investor Summit represent important opportunities to leverage our collective efforts and the Durban negotiations to develop clear strategies going forward.”


Findings from the Looking Glass report show that many investors are still internally 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.

 

About Mercer
Mercer is a global leader in human resource consulting and related services. The firm works with clients to solve their most complex human capital issues by designing and helping manage health, retirement and other benefits. Mercer’s 20,000 employees are based in more than 40 countries. Mercer is a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC), a global team of professional services companies offering clients advice and solutions in the areas of risk, strategy and human capital. With 52,000 employees worldwide and annual revenue exceeding $10 billion, Marsh & McLennan Companies is also the parent company of Marsh, a global leader in insurance broking and risk management; Guy Carpenter, a global leader in providing risk and reinsurance intermediary services; and Oliver Wyman, a global leader in management consulting. For more information, visit www.mercer.com. Follow Mercer on Twitter @MercerInsights.

 

Mercer’s 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