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Institutional investors worth $1.5trn back new Mercer climate change study

Update to 2011 report will look at ‘stranded assets’

A group of global institutional investors with combined assets of $1.5trn and including heavy hitters like CalSTRS, AP1 and the New Zealand Superannuation Fund are backing a new climate change study by consulting firm Mercer.

The report is a follow-up to its 2011 blockbuster report ‘Climate Change Scenarios: Implications for Strategic Asset Allocation’ that was also supported by a range of institutional investors.

That report, prepared in collaboration with a group of 14 leading global investors, recommended that institutional investors shift up to 40% of their assets into “climate sensitive” assets in order to mitigate environmental costs.

The new work will be “framed by several plausible climate scenarios with distinctive economic and market impacts, modeled out to 2030 and 2050” – and include the “topical subject” of the potential risks of ‘stranded’ carbon assets. It will be published in the first quarter of 2015.

Mercer will work on the project with fellow Marsh & McLennan businesses NERA Economic Consulting and risk consultants Guy Carpenter.

“In this study, we are helping investors identify ways to hedge against climate risks as we transition to a lower carbon economy,” said Jane Ambachtsheer, who heads Mercer’s global Responsible Investment (RI) team. “New data points and scientific evidence are now available, including the topical subject of the potential risk posed by so-called ‘stranded’ carbon assets.

“Ultimately, it’s about enabling institutional investors to adapt over the longer-term.”

Each investor partner will receive a bespoke report, applying forward-looking climate change scenarios to their current asset allocation. It will also include recommendations on how to make their portfolios more climate change resilient.The news comes as CalSTRS, the California State Teachers’ Retirement System, has said it plans to almost triple its investments in clean energy and technology to $3.7bn over the next five years.

And it has been reported that the $860m Rockefeller Brothers Fund is joining the fossil fuel divestment movement.

In addition, it’s emerged that the $92.1bn Washington State Investment Board is calling for “full disclosure” of the climate change risks faced by the companies in which it invests and how they are managing those risks.

Elsewhere, index and ESG firm MSCI has said today (September 22) that it has expanded its Low Carbon Indexes family with the launch of the MSCI Global Low Carbon Target Indexes. They add to the MSCI Global Low Carbon Leaders Indexes launched earlier this month. David Blood, Senior Partner of Generation Investment Management, called it “an important milestone for investors in the shift to a low carbon economy”. Yukio Takasu, Representative of the UN Secretary-General at the United Nations Joint Staff Pension Fund, added it was a “significant step in the right direction”.

Investors publicly backing the new Mercer study include:

  • Allianz Climate Solutions
  • CalSTRS
  • Church Commissioners for England
  • Construction and Building Industry Super
  • Environment Agency Pension Fund
  • Första AP-fonden (AP1)
  • New Zealand Superannuation Fund
  • State Super
  • WWF-UK