Investing in a sustainable future: time to transition, time to act now
The investment case for integrating environmental, social and governance (ESG) factors, being active owners, and identifying opportunities in sustainability themes has never been of more pressing importance than it is now, according to Jillian Reid, global head of sustainable investment solutions, and Rebecca Mather, principal, sustainable investment at Mercer.
The evidence for the impacts on portfolios is becoming clearer and more immediate, and the time to act is now. At Mercer, we recognise the increasing requirements and demands on our clients in the ESG space, and to address this we have recently grown our in-house Sustainable Investment (SI) team to 25 dedicated professionals. With $17 trillion in client assets under our advisement at Mercer it is our overall size, experience in sustainable investment and breadth of knowledge that helps set us apart from the competition. We can bring views, high-quality investment consulting and implementation solutions thanks to our network of colleagues with diverse and extensive experiences.
Driving ESG integration
Our SI team plugs into not just the broader Mercer network, but also our parent company, Marsh McLennan's climate change and sustainability capabilities. This vast connection ensures that we are on top of what clients are asking and what themes are emerging all over the world.
What clients need help with is constantly changing and adapting in different regions of the world, and we are able to adapt with it. This increased emphasis on ESG is driving regulators, beneficiaries and stakeholders to raise their expectations. As investors react to this and do more, a virtuous circle continues to grow those expectations. It is the four "R's" - risk, return, reputation and regulation – that we believe are really driving ESG integration.
By being proactive, ahead of the curve and recognising that now is the time to transition, we aim to deliver the most for our clients in order to potentially achieve strong long-term performance from investment portfolios. With sustainable investment being a part of our investment consulting credentials, we understand how sustainable investment advice fits into a client's investment process, how that sits alongside the other investment decisions that our clients are facing. That is the big picture that forms the sustainable investment journey we are able to take clients on and integrate ESG into their processes.
As an original consultant to the UN's Principles for Responsible Investment (PRI), as well as a founding signatory, Mercer has demonstrated a strong track record as a leader in sustainable investment.
Our three key sustainable investment principles
We are focused on three key sustainable investment principles. The first is to take a broader view on risk and return, across all asset classes and regions, to better prepare portfolios for real-world changes. Secondly, is to recognise the reality of stakeholder capitalism and that returns and environmental and social impacts must increasingly find a way to coexist. Thirdly, is to accept that as investor influence grows so does the expectation for accountability, particularly active ownership, and transparency and clear communication with stakeholders.
What differentiates us?
Where we think we set ourselves apart is that we identify shifting trends early. This includes new research and advice frameworks, for example in modern slavery and thought pieces on biodiversity (which are coming soon), along with the development of new tools to support our advice implementation.
One of these is Analytics for Climate Transition (ACT), which helps investors consider transition capacity, not just historical emissions, for underlying portfolio companies. This aids decision-making on where emissions reductions can be made most effectively while transitioning portfolios on a multi-year timeframe. Another example is the Responsible Investment Total Evaluation (RITE) tool, launched in the UK this year, allowing asset owners to assess how much they are integrating ESG into their investment choices. RITE provides investors with an ESG score from A++ to C, based on an evaluation of 21 categories and 75 data points.
These new developments are in addition to our long-standing ESG Ratings for investment management strategies, with the research team evaluating and rating 4,400 investment management strategies on their active ownership and integration of ESG factors.
Solutions commitments to a net-zero portfolio carbon emissions by 2050*
We are not content with just developing tools and ratings; we also 'walk the talk' for our investment solutions by integrating the same sustainable advice we provide to clients into our process for managing our funds. For clients investing in Mercer funds, we have Sustainable Investment Policies with clear integration commitments. This is already demonstrated by our commitment to a target of net-zero absolute carbon emissions by 2050 across our funds in several regions. Mercer Australia, which represents A$36.4 billion ($27.4 billion*) in AUM, pledged to move to net-zero carbon emissions by 2050 and expects to reduce emissions by 45% by 2030, from a June 2020 baseline. Our UK, Europe and Asia portfolio quickly matched this pledge for its $43.7 billion* in assets with the same reduction, from a December 2019 baseline. Other regions aim to work through their local governance reviews and approval processes.
Recognised as Investment consultant of the year
This strong team effort and global influence saw our Sustainable Investment team named Investment consultant of the year in the 2021 Environmental Finance Sustainable Investment Awards for our innovative advice, thought leadership and being an active participant in global investment industry developments. The award recognises the scale of our Sustainable Investment team and the customised guidance provided to institutional investors to promote ESG integration, active ownership, through shareholder voting and company engagement, and investing in sustainability-themed opportunities.
* Defined as absolute carbon emissions, per $M of FUM and Scope 1&2 for the Mercer Funds in aggregate and for each diversified fund, for 11 multi-asset Mercer Funds in aggregate, and for each participating client with a discretionary growth portfolio where total client AUM has been considered here. While the funds continue to maintain an investment objective of seeking long-term growth of capital and income, they also promote environmental characteristics through progressive decarbonisation with a view to achieving net-zero emissions by 2050.
Important information - This article is not formal investment advice to allow any party to transact. Advice specific to your circumstances will be required in advance of entering into any contract. The opinions expressed herein are the intellectual property of Mercer and are subject to change without notice. They are not intended to convey any guarantees as to the future performance of the investment products, asset classes or capital markets discussed. Past performance does not guarantee future results. Mercer’s ratings do not constitute individualised investment advice.