RI mainstreaming boost as Mercer rates total manager database

Consultant says it is ‘hard-coding’ ESG into manager selection process.

Integration of responsible investment practices into mainstream institutional asset management has been given a significant boost by the announcement that Mercer, one of the world’s largest investment consultants, is to rate all fund managers on their strategic responses to environmental, social and governance concerns. Mercer, which advises on global institutional assets worth a total of $3 trillion (€1.9trillion), including sovereign wealth funds, says it will now ask ESG questions of every manager in its database. Notably, this will include questions on the way portfolio managers incorporate the potentially ‘material’ costs of issues such as climate change and reputation risk on human rights and social issues in their share buy and sell decisions. The consultant will then report the results to pension fund clients alongside factors such as its usual ‘alpha’ recommendations on manager performance. Mercer said the move reflected increasing interest by investors in behaving as active owners of capital. Last week, the £3.6bn London Pension Fund Authority (LPFA) said it would no longer hire fund managers that failed to comply with certain criteria on ethical, social and governance issues, including those that do not sign up to the UN Principles for Responsible Investment. Danyelle Guyatt, principal in Mercer’s responsible investment team, said: “We are hard-coding 15-20 ESG questions into the database thatwe use for manager assessment. Clients will then be presented the information and we expect that how they use it will depend on how far they want to include ESG factors in their manager hires. We certainly believe we are chipping away at any resistance to the idea that ESG materiality factors are not mainstream investment concerns.” Guyatt said that in the last two weeks the consultant had received 1400 responses on ESG integration from fund managers.
Mercer has built the largest global team of specialist responsible investment consultants since launching a dedicated unit in 2004.
The consultant was also hired by the United Nations Principles for Responsible Investment on a three-year contract to carry out a detailed annual survey of PRI signatories and their progress in adopting the principles. In June, 2007, it created the Principles for Responsible Investment (PRI) Implementation Service, including the monitoring of ESG factors within investment at fund managers.
Tim Gardener, a vocal supporter of responsible investment and former head of global consulting at Mercer, recently took up the position of global chief investment strategist, reporting to group chief executive Michele Burns. Andrew Kirton, former European consulting chief, was promoted to global head of investment consulting.