Integrating ESG into your defined benefit plan 

What’s the factor that 70% of defined benefit (DB) plan sponsors see as being critical to their investment approach?

Environmental, social and governance (ESG) considerations – one of the key findings of our recent survey of DB plan sponsors.

Whether it is mission-alignment, ESG investment policy implementation, or responding to stakeholder feedback and needs, institutional investors cited reasons show that ESG factors are becoming a crucial consideration as plan sponsors shape the future.

At Mercer, we believe that the right governance model can make your DB plan more robust in the face of environmental and social challenges – without sacrificing performance.

Watch this video to see reasons why ESG factors are growing in importance for DB plan sponsors.

Contact a Mercer consultant and we’ll work with you to identify opportunities for greater alignment between your plan’s goals, your stakeholder concerns and your investment philosophy.

Defining your ESG journey

One key reason that motivates institutional investors to consider ESG factors is ESG investment policy implementation. This is an important step in a robust investment governance framework for asset owners to align their financial, strategic and sustainability objectives. Why is it important to have a sustainable investment policy?
  1. Risk management and mitigation: 
    Sustainability and risk management go hand in hand. Issues such as climate or diversity, equity and inclusion can pose risks to businesses' financial stability and sustainability and, in turn, impact risk within an investment portfolio. Fiduciaries have a responsibility to consider a wide spectrum of risks and indicators, ensure the resilience of investment portfolios, safeguard assets and enhance long-term value.
  2. Long-term value creation: 
    A sustainable investment policy provides the guidance and guardrails for generating investment returns and growing assets. Asset owners that are well prepared to address sustainability risks and opportunities are better equipped to navigate market shifts, regulatory changes and emerging trends.
  3. Stakeholder expectations: 
    Stakeholders’ views are likely to be diverse. Some stakeholders may demand investors do more and act faster in response to sustainability risks and opportunities, while others may be skeptical of sustainability factors and indicators. Some stakeholders are seeking more data, analysis and education to inform their view. Good governance means having a robust framework and process that takes into consideration diverse views. A well-defined sustainable investment policy demonstrates an asset owner’s diligence, articulates its commitment to the prudent stewardship of assets with a long-term view, and builds transparency and trust with stakeholders.
Understanding the “big picture” implications of a fully developed ESG strategy can be daunting to tackle by yourself. With guidance from Mercer’s team of sustainable investment specialists, the big picture can start to feel a little more manageable.

What’s on the minds of DB plan sponsors?

Integrating ESG into a defined benefit plan is one of many priorities we asked your peers about in our recent survey.

What are the top priorities for DB plan sponsors over the coming years? One priority emerged as the clear frontrunner: de-risking their plan. In fact, 46% of respondents cited that as their top priority, followed by surplus utilization (32%) and then enhancing governance processes (20%)1.

What these answers demonstrate is just how much a comprehensive approach to ESG can support other aspects of managing your plan. Accounting for risks related to climate change while strengthening the governance of a plan go hand in hand, helping to secure plan stability for the long term. 

Dive deeper into these and many more insights in our: Shaping the Future survey of DB plan sponsors.

Mercer is ready to help

We help forward-thinking organizations enact positive changes, even when they don’t know where to start. As an investor, you should assess how comprehensively ESG considerations are being blended into your current investment framework and how this can be monitored over time.

Partnering with Mercer means you’re getting not just the knowledge and technical skills of our consultants, but also resources on a global scale. That scale informs how we design tools and solutions to help strengthen every aspect of your ESG strategy.

Tools

  • Responsible Investment Total Evaluation (RITE) tool

    Responsible Investment Total Evaluation (RITE) approach

    Our RITE approach can evaluate your portfolio across each area of Mercer’s Sustainable Investing Pathway (Beliefs, Policy, Process and Portfolio) to draw a comparison against your peers. This tool can also monitor your progress over time.

  • Transition framework for emissions reductions

    Our transition framework can help you establish your current emission baselines while assessing how to make reductions, set target milestones, and develop an implementation plan that can be integrated within your strategy and portfolio.

  • Sustainable investment pathway

    By starting with your organizational beliefs and seeing how they can filter up into policies, processes and ultimately your portfolio, we can craft a pathway tailored to your organization that ensures your ESG targets are both attainable and impactful. 

     

Find out more about our solutions and tools and how they can enhance the resilience of your portfolio.
1 Mercer survey conducted from June 1 to June 30, 2023.

Contact a Mercer sustainable investment consultant. 

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