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Climate risk rockets up agenda for European pension funds, says Mercer

Number of schemes considering climate has risen nearly fourfold in a year, according to latest survey

More than half of European pension schemes now consider climate risk – up from just 14% last year, according to a survey by Mercer.

The consultant’s ‘2020 European asset allocation insights’ looked at investment strategy broadly for the European pension industry, and identified emerging trends in the behaviour of 927 institutional investors. 

In 2019, just 14% of respondents said they considered climate risk, but that figure has shot up to 54% in 2020. 

Alongside climate risk, Mercer’s research found that 89% of schemes surveyed now consider wider ESG risks as part of their investment decisions, up from 55% in 2019. While regulation continues to drive investors’ concern with ESG risk, a growing number are driven by the potential impact on investment returns, the desire to mitigate potential reputational damage, or the wish to align with its sponsor’s corporate responsibility strategies.

More generally, investors across Europe and the UK continue to diversify away from listed equities into growth fixed income, real assets and private equity. More investors are focusing on factor-aware strategies through balanced or targeted exposure to the factors underlying equity returns.

Despite the data being collected prior to markets being hit by covid-19, Mercers expect the survey results to be largely unchanged due to the effect of both rebalancing policies and market recovery.