Your path to portfolio transition
“Many investors are not yet equipped to invest in a decarbonizing economy and don’t even know where to start. Our analytics and advice help all investors transition their portfolios to address the challenges of managing climate risk, meeting return objectives while staying on target for a net-zero outcome.”
– Helga Birgden, Global Leader Responsible Investment
Institutional investors such as pension funds, financial institutions, insurers, wealth managers, endowments and foundations, hold trillions of dollars in assets1 in their portfolios that are highly exposed to climate transition risk in a decarbonizing economy. If investors do nothing to address this issue today, climate change could reduce their ability to deliver on investment promises such as pension payments. We believe that now is the time for investors to reposition portfolios for the transition to a zero-emission economy. Mercer’s analytics help investors assess their investments by categorizing the portfolio on a spectrum — going from “gray” or high-carbon, low-transition investments to those that are already low-/zero-carbon or are climate solutions — “green” investments. Many companies lie in the middle, and these also need to be assessed on their capacity for transition in the future.
The scientific evidence shows the situation is urgent. We’ve already had a 1°C increase in average global temperatures over preindustrial times. According to current science1, we could be facing a 2°C increase in as few as 30 years — a climate humans have never experienced. As a result, investors should educate themselves on the downside risks they face because of the transition — as well as potential opportunities to benefit from it. In particular, many companies, investors and governments have announced alignment with the targets of the 2015 Paris Agreement, including taking measures to prevent temperatures from increasing past the 1.5ᵒC threshold2.
Addressing climate change requires reducing fossil fuel emissions. Studies indicate that the transition to a low carbon economy is already underway3. Consider how technology has driven down the cost of renewables. 2019 was the fifth year in a row in which renewable capacity additions, outstripped additions from fossil fuels and nuclear combined, for example, NextEra Energy now has a larger market capitalization than ExxonMobil.
As investors, we need to try to assess companies’ ability or willingness to transition toward limiting global temperature increases and how well-positioned they are for the low-carbon economy. To make a proper assessment, we need to get serious about the risks. One of the key findings of our Investing in a Time of Climate Change — The Sequel report was that investors should position for a below 2ᵒC scenario, which we believe will offer improved investor outcomes.
Regardless of your size or where you are on your climate change journey, your exposure to the climate transition is likely to impact your portfolio. We work with clients of all shapes and sizes, helping them assess portfolio opportunities, establish targets and produce implementation plans that can be integrated with strategy and portfolio construction decisions.
Our new Analytics for Climate Transition (ACT) can help you set your transition pathway. We help you to assess your portfolio using metrics from numerous providers to gain insight into your portfolio across a spectrum of carbon risk from low transition capacity (grey investments), through to investments that are low carbon risk /zero carbon already, or those that are providing climate solutions (green investments). The majority of companies in investor portfolios fall somewhere in between and need to be understood for their capacity to transition. The Mercer analysis will help you to rank the transition capacity of listed companies in your portfolio, across the spectrum from gray to green.
Your total portfolio view will provide baseline results for multiple asset classes. You’ll be able to drill down into manager portfolios that are driving asset-class results. This insight will help you determine where your current carbon emissions are in the portfolio and where you can make reductions. It will also help determine where to focus your efforts with sectors and companies to improve transition capacity and increase your exposure to green solutions.
Connect with one of our experts below, or fill in the contact form to learn how we can help you on your energy transition pathway.
Global Business Leader, Responsible Investments, Melbourne
Helga provides investment advice on ESG and climate change in complex assignments to trustees, directors and investment boards of pension funds, sovereign wealth funds, endowments and insurers. She leads Mercer’s global Responsible Investment Team. Helga helped lead Mercer’s global climate change studies and portfolio modeling for climate implementation — Investing in a Time of Climate Change (2011 and 2015) and The Sequel (2019) — representing client portfolios investing more than US$3 trillion. She has recently authored a book chapter on climate modeling published by Routledge (2020), is Deputy Chair of the Investor Group on Climate Change and is also active as an advisor on responsible investment issues. She has prepared research on both climate change and systemic issues for multilateral institutions such as the World Economic Forum, International Finance Corporation, World Bank Group, G20 and the United Nations.
Senior Responsible Investment Specialist
Jillian advises super funds and other institutional investors on integrating ESG factors, sustainability trends, climate change and stewardship within investment processes. She is a key contributor in developing Mercer’s intellectual capital and integrating responsible investment within Mercer globally, including within the delegated solutions. Jillian was project manager and co-author for Mercer’s 2015 Investing in a Time of Climate Change report and The Sequel in 2019. She has written and presented on water — too much and too little — and helped multiple boards balance risk, return and reputation implications for sensitive investment topics.
Global Strategic Research Director, Sydney
Nick has responsibility for house views on multi-asset-class research and portfolio construction, as well as the development of the strategic research agenda. Nick’s role extends to contributing to strategic policy decisions for the suite of Mercer funds in the Pacific market. This aspect of his role formally links Mercer’s strategic best ideas and forward-thinking research to building discretionary portfolios, ensuring Mercer’s best ideas are mapped to all clients’ advice and funds.
Business Leader, Responsible Investments, Europe
Business Leader, Responsible Investments, EuropeKate works with clients to ensure sustainability and ESG issues are reflected in their investment strategies. Kate advises a broad range of clients, including pension funds, endowments, foundations and insurers on sustainability trends, regulatory developments, climate change, stewardship and impact investing.
Kate develops intellectual capital across a range of responsible investment topics. She has authored and co-authored several recent reports and papers, including Investing in a Time of Climate Change (2015) and The Sequel (2019) and Resilience: Lessons to Scale Responsible Investment (2020) in partnership with the UK-China Green Finance Centre.
Chief investment officer, Pacific
Kylie leads the Investment Management team in the Pacific which is responsible for managing approximately A$41 billion in assets within Mercer’s multi-manager funds. Kylie also Co-Chairs the Global Delegated Solutions ESG Integration Committee where she leads investment thought leadership for Mercer funds globally on ESG integration and investment stewardship. Kylie’s strong focus on sustainability has led her team of investment experts to embed a holistic approach to ESG integration into investment strategy and decision making for superior client investment outcomes. Further, Kylie has led the development of certified socially responsible fund offerings for clients. Amongst key areas of sustainability focus, Kylie has led the funds response to Task Force on Climate-related Financial disclosures (TCFD) recommendations, Australian Modern Slavery Act as well as global ESG engagement priorities including diversity and corporate governance. The efforts of the team and Mercer’s mission were recently rewarded with the top accolade for responsible investment strategy and governance by the PRI.
1. Mercer. Investing in a Time of Climate Change — The Sequel, 2019.
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