August 13, 2020


Responsible investment (RI) has come a long way since I started working in the city in the early 1980s. There are questions, once heartily debated, which are now largely settled. Issues that had many shades of grey, such as whether climate change was real or whether good governance of a company led to better outcomes, look dichromatic in retrospect. This progress hasn’t all been in a straight line, but I can say with confidence that our clients invest more responsibly today than they did 30 years ago.


For asset owners, or fiduciaries, return outcomes remain the priority. However, we firmly believe that this doesn’t require compromise in terms of responsible investment. Further, in many cases the end beneficiaries are demanding, or expecting, their savings to be invested responsibly.[1]


The bad, the good, the ugly, in that order

In the early days of RI, most investors focused primarily on “bad” stocks, and their exclusion. The uncomfortable parts of portfolios, better excised than addressed. Whilst many investors continue to use exclusions to align their portfolios with their values and investment beliefs, the consensus has since evolved to conclude that excluding the (obviously) bad stuff isn’t enough. We need to double-down on the good as well, providing additional finance to companies with a responsible approach to the environment, our society, and corporate governance (seeking improved returns in the process)[2].


The ugly (by which here I just mean harder) question was what to do about the bulk of companies that sit somewhere between good and bad, and even more ambitiously, can we incentivise change in those companies that have historically been excluded, rather than simply booting them out of portfolios?


This is stewardship. Taking active responsibility as an investor for overseeing, and incentivising, responsible corporate practice in the search for better returns. Thanks to a growing awareness of the issues, better data from companies and index providers, and the tireless work of some pioneering responsible investors, stewardship has gone mainstream.


A surge in responsible investment products

As the demand for RI has increased, so has the availability of products with an explicit focus on responsible investment, ESG or sustainability. In the last 12 months, in particular, the supply of such products has surged.


There is undoubtedly important innovation happening; the new wave climate indexes look particularly interesting for passive investors that want to position for a transition to a lower carbon economy. However, we also suspect some significant greenwashing is taking place. It would appear that there are not just shades of grey, but also shades of green.


Finding the right shade of green

So what does the right shade of green look like? What do we, at Mercer, look for in a responsible investment strategy?


Among other things, we look for transparency and consistency. We want to see strategies that are borne out of a genuine belief that investing in a responsible way improves investment outcomes. We also want to see companies casting the same spotlight on themselves that they cast on others so that we can uncover, and address, contradictory actions. This is something that I know is much easier to say than do and will take time. Being open and discussing the issues helps and over time I hope that companies who work with ‘grey’ companies can engage and make them greener.


Asset managers and corporate management teams incorporating the perspectives of a broader range of stakeholders[3] are likely to face a number of tough, and sometimes contradictory, decisions in the coming months and years, balancing competing demands from shareholders, employees and the environment. In an age where corporate action is under heightened scrutiny, it can be tempting to avoid public disclosures in a bid to avoid high-profile criticism.


However, we’ve learnt from stewardship that doing so is counter-productive. From working with investors who engage with the companies they invest in, we’ve seen that progress is fastest in an open, collaborative environment. This is why we favour transparency, and that transparency often begets consistency.


We can’t do better by doing the same

Our clients are asking more of their investments, and of their investment managers than ever before. They are asking us to support that effort through our research, data and analysis. It would be unfair to expect perfection. Doing something differently means risking doing something worse, but it is also the only route to a better, brighter future. We owe it to each other, the businesses we run and the world we share, to try for that.

[1] Investing in a better world, UK Government Department for International Development, (September 2019)

[2] The ESG premium: New perspectives on value and performance, McKinsey & Company, (February 2020)

[3] The purpose of corporations: a tale of two theories, Mercer, (2019)


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Deb Clarke
Deb Clarke

Global Head of Investment Research