Mercer readies sequel to ground-breaking climate change investment study

Investment consultant re-visits ‘Investing In A Time Of Climate Change’

Investment consultant Mercer is putting the final touches to a sequel to its influential 2015 report on climate change investment.

The original Investing In A Time Of Climate Change report three years ago said anticipating and preparing for the impact of climate change on investment returns should be an integral part of the investment process.

It was named-checked by everyone from the New Yorker to Mark Carney in the context of the COP21 meeting in Paris.

The 2015 work – spearheaded by Mercer’s then head of responsible investment Jane Ambachtsheer (now with BNP Paribas) – followed on from the firm’s 2011 opus ‘Climate Change Scenarios: Implications for Strategic Asset Allocation’.

This was was backed by 14 major global investors and advocated a massive institutional shift to climate sensitive assets.

Now the consultant is saying: “Mercer has engaged with its clients for many years on the potential impact of climate change, and we will shortly be publishing ‘Investing in a Time of Climate Change — The Sequel’, along with extended and enhanced climate-impact modeling.”

“We believe this work will be helpful to investors looking to take a broader perspective on risk,” Mercer says in a new 2019 outlook particular, major disruption to energy producers is overdue, where a shift away from the energy sources that fueled the Industrial Revolution is already underway and gathering steam — a risk we believe investors should bear in mind is that they could end up with ‘stranded assets’.”

The report will come into a market that has changed substantially in the past few years. To name just a few examples of things that have altered, the green bond market has gained traction, central banks have ‘woken up’ to climate change’ and there’s an EU Action Plan on Sustainable Finance.

Mercer says that focusing on appointing managers with strong ESG credentials “could be the most effective and appropriate first step” for investors looking to incorporate sustainability into their portfolios.

“This can then be extended to incorporating more sustainability-focused satellites into their equity portfolio — for example, by investing in an active environmental equity strategy.”

For “fee- and governance-sensitive” investors, Mercer suggests looking at allocating to an ESG-focused index, an approach with “merit in terms of potential risk reduction” with return prospects over the long term “in line with traditional approaches”.

It concludes: “For unconstrained investors with a higher commitment to sustainability, impact investing through private market strategies is worth considering.”