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Mercer and CIEL Launch Initiative, Trillion-Dollar Transformation, Focusing on Pensions and Climate Risk

  • December 6, 2016
  • United States, New York

As part of the new program, two new research reports outline legal, governance and risk assessment frameworks US pension trustees can use to manage climate change risks

Mercer, a global consulting leader in advancing health, wealth and careers, and a wholly-owned subsidiary of Marsh & McLennan Companies (NYSE: MMC) and the Center for International Environmental Law (CIEL) today announced the launch of their Trillion-Dollar Transformation initiative. To kick off the initiative, two reports were released detailing the financial and legal challenges climate change presents for pension fund trustees and describing tools for addressing those challenges. The reports are a springboard for the initiative, which will build on this research by facilitating education events during 2017 as well as ongoing engagement with fund fiduciaries. 

Climate Change Investment Risk Management for US Public Defined Benefit Plan Trustees is a financial analysis by Mercer, identifying the various approaches trustees can use when considering investment risks from climate change. The report introduces governance and quantitative frameworks that trustees can use to inform related tangible actions. By running a hypothetical pension portfolio through its proprietary climate modeling framework, Mercer’s findings demonstrate that the average US public pension is markedly exposed to the potential for billions in lost asset value under a Transformation scenario, which is aligned with a 2oC temperature outcome, the baseline goal of the 2015 Paris Climate Agreement. 

“Climate change is a potentially material investment risk which presents trustees of US pension plans with a distinct risk management challenge. It’s not just one monolithic risk, but rather a risk-of-risks including physical risks due to changing weather patterns and political or technological risks associated with the ongoing transition to a low-carbon economy,” said Alex Bernhardt, Principal and US Head of Responsible Investment at Mercer. “This report offers a list of suggested concrete governance processes, risk assessment methods and risk management decisions which public pension boards can use as they look to evaluate the potential impact of climate change on their portfolios.” 

In its companion legal analysis, Trillion Dollar Transformation: Fiduciary Duty, Divestment and Fossil Fuels in an Era of Climate Risk, CIEL reviews how climate change may affect the fiduciary obligations of pension fund trustees and concludes that a failure to acknowledge and respond to these financial risks may constitute breaches of trustees’ fiduciary duties. CIEL’s analysis recommends steps fund fiduciaries can take to address climate risk, protect the interests of current and future beneficiaries and avoid potential liability. These steps include adopting appropriate investment principles, reducing exposure to climate vulnerable assets, hedging against climate risk by investing in renewable energy and other climate-resilient assets, and actively engaging as a shareholder with owned companies. 

“The regulatory, technology, and policy responses to climate change are and will continue to have real financial impacts on asset portfolios with substantial carbon exposure,” said Lisa Anne Hamilton, Climate & Energy Program Director for CIEL. “As these analyses demonstrate clearly, fund managers who ignore climate-related risk may be violating duties owed to fund beneficiaries, and exposing trustees and other fiduciaries to liability.” 

The reports form the cornerstone for an ongoing series of events designed to educate pension fund trustees on the legal and financial risks and opportunities arising from climate change. 

Established in 2004, Mercer’s Responsible Investment team has helped to shape and set the environmental, social, and corporate governance (ESG) agenda for investors around the world. The team continues to help our clients integrate ESG factors within their investment process and construct portfolios to take advantage of sustainable growth opportunities. 

The full Mercer report can be found here: "Trillion Dollar Transformation - A guide to climate change investment risk management for US public defined benefit plan trustees"

More information about the Trillion Dollar Transformation can be found here: http://ow.ly/aTnY306Rrcc 

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About Mercer

Mercer is a global consulting leader in talent, health, retirement and investments. Mercer helps clients around the world advance the health, wealth and careers of their most vital asset – their people. Mercer’s more than 20,000 employees are based in 43 countries and the firm operates in over 140 countries.   Mercer is a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC), a global professional services firm offering clients advice and solutions in the areas of risk, strategy and people. Mercer’s climate change modeling framework was first described in the 2015 report, Investing in a Time of Climate Change.  With annual revenue of $13 billion and 60,000 colleagues worldwide, Marsh & McLennan Companies is also the parent company of Marsh, a leader in insurance broking and risk management; Guy Carpenter, a leader in providing risk and reinsurance intermediary services; and Oliver Wyman, a leader in management consulting. For more information, visit www.mercer.com. Follow Mercer on Twitter @Mercer

About CIEL

Founded in 1989, the Center for International Environmental Law (CIEL) uses the power of law to protect the environment, promote human rights, and ensure a just and sustainable society. CIEL is dedicated to advocacy in the global public interest through legal counsel, policy research, analysis, education, training, and capacity building. For more information, visit www.ciel.org. Follow CIEL on Twitter @ciel_tweets.

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