Mercer: Investors need to apply climate-change factors
Skip to main content
pilogo-NEW
Subscribe
  • Subscribe
  • My Account
  • login
  • NEWS
    • Asset owners and the coronavirus
    • Alternatives
    • Consultants
    • Coronavirus
    • Defined Contribution
    • ESG
    • Frontlines
    • Hedge Funds
    • Investing / Portfolio Strategies
    • Money Management
    • Pension Funds
    • People Moves
    • Private Equity
    • Real Estate
    • Searches & Hires News
    • SECURE Act
    • Special Reports
    • WorldPensionSummit
    • Ron Schmitz
      Pandemic drives faster transition for Virginia to private markets
      Mubadala Investment Co. logo
      Mubadala draws on portfolio in coronavirus fight
      T.J. Carlson
      Texas Muni reduces downside risk during pandemic, finding opportunities now
      Scott Davis
      ‘Triage plan’ at Indiana system helped stem losses
    • John Haggerty
      Sector’s risks need to be weighed, consultant says
      A healthcare worker provides care for a COVID-19 patient in the intensive care unit at the Saint Joseph hospital in Marseille, France, on Nov. 20, 2020.
      Private equity’s health-care role draws spotlight
      Some alternative strategies struggle in first quarter following tough 2020
      Close up of Business people shaking hands, finishing up meeting, business etiquette, congratulation, merger and acquisition concept
      Cathay Innovation Partners takes minority stake in Seaya Ventures
    • Hub International continues buying spree with IBG acquisition
      Callan brings on 2 executives
      Hub International agrees to buy Plan Sponsor Consultants
      Aon names public markets solution leader
    • Michelle Dunstan
      Move to link exec pay to ESG integration growing
      The J.P. Morgan Chase logo displayed at a branch bank
      J.P. Morgan sells $13 billion of bonds in largest-ever bank deal
      John Bakarat
      Commentary: COVID-19 and real estate debt – where investors should be looking
      IACPM: Credit managers see stabilizing effect from stimulus programs
    • Interest rises in keeping retiree assets in-plan
      Joseph Healy
      Smaller DC plans place greater focus on improving financial wellness efforts
      Pentegra launches pooled employer plan
      Teresa Hassara
      Ascensus taps MassMutual alum as new FuturePlan president
    • Focus on human rights a challenge in China
      Michelle Dunstan
      Move to link exec pay to ESG integration growing
      WTW to cut carbon footprint of OCIO portfolios by half by 2030
      SEC Commissioners Testify Before The House Financial Services Committee
      SEC shouldn’t require ESG metrics – commissioner
    • Girls Who Invest
      MetLife plans 3 internships for Girls Who Invest scholars
      Model home
      Resmark sees niche in buying, leasing model homes
      Riscura stories
      Dystopian tales explore altered retirement reality
      Joel Holsinger
      Ares wants to do good – and profit – with fund
    • Karen Karniol-Tambour
      Bridgewater appoints 2 co-CIOs to oversee new sustainable investing group
      Hedge funds post best first-quarter return since 2000
      Jason Kephart
      Managers see good times ahead in 2021
      Jev Mehmet, CEO of Brevan Howard's Coremont unit
      Brevan Howard runs $50 billion unit like BlackRock’s Aladdin
    • The WallStreetBets forum on the Reddit website on a laptop computer and the GameStop logo
      Archegos, GameStop events offer lessons on risk
      Girls Who Invest
      MetLife plans 3 internships for Girls Who Invest scholars
      John Haggerty
      Sector’s risks need to be weighed, consultant says
      Focus on human rights a challenge in China
    • Ameriprise, Amundi add to their European rosters
      Larry Fink
      BlackRock tops $9 trillion on record inflows
      Morgan Stanley logo
      Morgan Stanley’s record quarter stained by Archegos collapse
      Man Group CEO Luke Ellis
      Man Group AUM up in first quarter on performance
    • Corporate plan funding gets a boost from higher discount rates – Milliman
      Evan Siddall
      AIMCo lines up next CEO
      A bank customer takes Danish Kroner banknotes from an ATM in Aarhus, Denmark
      Denmark’s PFA Pension achieves 6.3% return in first quarter
      Ontario Municipal promotes from within for new global equities exec
    • Tufts taps interim co-CIO as new investment chief
      Michael Zerda
      LaSalle picks head of debt and special situations
      Evan Siddall
      AIMCo lines up next CEO
      Susan Ford
      Duff & Phelps brings on institutional business development managing director
    • Paul Morrissey
      Blackstone Growth picks managing director to lead European investing
      Bills of euro, dollar and pound currencies, among others
      Ardian closes latest buyout fund at $8.8 billion
      Hand typing on stationary iPhone at an office reception desk
      Private equity’s taste for tech spurs $80 billion deal spree
      Vista Equity promotes 2 to leadership roles on 2 funds
    • CalSTRS indutrial property
      Investors hungry for industrial properties
      Tim Wang
      GLP names co-president of logistics, industrial real estate for China
      Frank Forster
      StepStone Real Estate adds managing director for Europe
      Christine Iacoucci
      BentallGreenOak promotes from within to fill Canadian CIO role
    • Andy Schreiner
      New PEPs targeting firms without retirement plans
      Jackie Walorski
      Contribution catch-up for caregivers gaining favor
      Retirement cartoon
      Hopes rising for retirement readiness in 2021
      Neal and Brady
      Retirement security could be only issue both sides accept
    • A coin representing Bitcoin cryptocurrency in the U.K.
      Cryptocurrency and digital assets
      Corporate pension contributions
      Eddy Awards 2021
      COVID-19: One year in
    • U.S. still a key market for investors
      Collected coverage of P&I's 2020 WorldPensionSummit
      Pedestrians pass a large advertisement on the Arndale Center shopping mall reading 'Act now to avoid a local lockdown' in Manchester, England
      COVID-19 puts new opportunities and risks on the agenda - WPS panelists
      Screens display stock price information over the trading floor of the NYSE Euronext exchange in Paris
      Private assets will continue to grow in portfolios – WPS panelists
  • Data
    • Research Center
    • Searches & Hires Database
    • Searches & Hires News
    • RFPs
    • Charts / Infographics
    • Sponsored Research
    • Trackers
    • Q2 2020 searches and hires overview report
      Q2 2020 money manager M&A activity summary
      Q2 2020 legal overview report
      Q1 2020 searches and hires overview report
    • University of New Hampshire endowment allocates $14 million
      Memphis Light, Gas & Water scouting for special situations funds
      Washington State Investment Board earmarks $4.2 billion for 7 funds
      Virginia earmarks $1 billion for 4 managers
    • University of New Hampshire endowment allocates $14 million
      Memphis Light, Gas & Water scouting for special situations funds
      Washington State Investment Board earmarks $4.2 billion for 7 funds
      Virginia earmarks $1 billion for 4 managers
    • Passive Investment Management Services
      Active Extended Global Credit Manager Search
      Actuarial Services
      Investment Management Services
    • Private real estate funds continue rebound
      Managed account adoption stalls in 2020
      U.S. bonds have worst quarterly return since 1981
      Stable value retains edge over money market funds
    • Institutional Investors: Shared Expectations, Divergent Paths
      Global Investor Study 2016
      Workplace Financial Wellness
    • U.S. Endowment Returns Tracker
      Pension Fund Returns Tracker
      Earnings Tracker
      Corporate Pension Contribution Tracker
  • Insights
    • Opinion
    • White Papers
    • Industry Voices
    • Letters to the Editor
    • Partner Content
    • Publisher's Update
    • Marcie Frost
      CalPERS: Urgency underscores all areas of providing retirement security
      BPTW cartoon
      P&I’s Best Places to Work marking a milestone
      CalPERS cartoon
      Urgency underscores CalPERS' search for a CIO
      Multiemployer plans cartoon
      Money — but no fixes — for multiemployer plans
    • Bipsync Client Stories: RMS in Action at Pensions and Superannuation Funds
      COVID-19 Makes LP Portfolio Management More Important Than Ever
      China: the outlook is bright for longer-term investors
      Finding Differentiation in Securitized Assets
    • John Bakarat
      Commentary: COVID-19 and real estate debt – where investors should be looking
      Jake Remley
      Commentary: Inflation expectations vs. reality in the bond market
      Greg Shea and Steven Kindred
      Commentary: The solution for yield-seeking allocators may be hiding in plain sight
      Jim Park
      Commentary: Asian Americans, Pacific Islanders face ‘bamboo ceiling’ in money management
    • Marcie Frost
      CalPERS: Urgency underscores all areas of providing retirement security
      Writer using a typewriter
      OCIO industry needs to adopt GIPS
      Writer or journalist workplace. stock illustration
      Even as it assails China, Trump administration emulates it
      Skeptical of Main Street support for proxy adviser proposal
    • P&I Content Solutions
      Research for Institutional Money Management
      P&I Content Solutions
      Top questions for institutional investors
      Sponsored Content By Newton Investment Management
      Growth and Innovation in Emerging Markets
      P&I Content Solutions
      In Challenging Markets, Systematic Global Macro Strategies Could Hold Opportunity
    • Help us help you by supporting quality journalism
      You Must Believe in Spring
      Everything Must Change
      Tomatoes & Investments
  • Multimedia
    • Videos
    • Webinars
    • Polls
    • Slideshows
    • Charts / Infographics
    • watch video
      1:23
      The passive fixed-income glut
      watch video
      1:38
      Is it time for DC plans to embrace private equity?
      watch video
      5:39
      The coronavirus pandemic: One year later
      watch video
      0:45
      Private funds weathered 2020 turmoil
    • New Outlook on Income: A Framework for Evaluating DC Retirement Income Solutions
      Understanding the PEP Evolution
      Divest or engage?
      Innovations in DC: Helping supercharge retirement outcomes
    • POLL: The Biden infrastructure plan
      POLL: Retirement income solutions
      POLL: Working after the pandemic
      POLL: The year ahead for the 1,000 largest U.S. retirement funds
    • view gallery
      9 photos
      Coronavirus and the markets
      view gallery
      22 photos
      The 1,000 largest retirement funds: 2020
      view gallery
      10 photos
      Outlook 2020
      view gallery
      10 photos
      2019 as seen through the eyes of Roger
    • Graphic: The state of DC plans
      Graphic: Invesco’s bid for performance gains
      Private real estate funds continue rebound
  • Events
    • Conferences
    • Webinars
    • DC Investment Lineup Virtual Series
      ESG Investing Virtual Series
      Private Markets Virtual Series
    • New Outlook on Income: A Framework for Evaluating DC Retirement Income Solutions
      Understanding the PEP Evolution
      Divest or engage?
      Innovations in DC: Helping supercharge retirement outcomes
  • Careers
  • Research Center
MENU
Breadcrumb
  1. Home
  2. Online
February 15, 2011 12:00 AM

Mercer: Investors need to apply climate-change factors

Drew Carter
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print

    Institutional investors around the world should build climate-change risks into their asset allocation and risk management processes and urge policymakers to act quickly to curb emissions, according to a new report by Mercer.

    Investors should broaden their approaches to include an awareness of risk factors and include climate-sensitive investments such as those in infrastructure and sustainable equities in their asset allocations, Danyelle Guyatt, principal and global head of research, responsible investment at Mercer, said at a client conference on the report Tuesday in London.

    “There is an increased source of risk from climate change, and it could be material,” Ms. Guyatt said.

    Breaking down a typical U.K. pension fund asset allocation of 50% equities, 40% fixed income and 10% real estate, Mercer found the risk-factor exposures include 10% to climate policy risk and 1% to climate technology risk. Ms. Guyatt suggested investors would benefit from diversifying away from the equity risk premium, and boost exposure to climate technology risk — the risk of a technology becoming obsolete — while curbing exposure to climate policy risk — the risk of a country suddenly imposing a tax, tariff or other measure that affects an investment.

    By overlaying asset allocation data from 14 worldwide pension and sovereign wealth funds on four climate-change scenarios, Mercer was able to show how certain environmental and policy variables might affect investments over long-term horizons.

    “There has been a reasonable amount of research around what climate change might mean for particular companies (or) sectors … but what we didn't have was something that looked at what it meant (more broadly) for asset owners,” said Bruce Duguid, head of investor engagement at the Carbon Trust, one of the report's sponsors.

    He added some investors might be surprised to learn that the way to address climate risk is by investing in climate assets, which are “at the moment, seen as risky assets, so you actually address (climate) risk by adopting what might be seem to be a greater risk profile.”

    In the report, Mercer found that over the next 20 years:

    • climate change policy risk could boost portfolio risk by 10 percentage points;

    • impact of climate change on the environment, health and food security could cost $4 trillion, and policy changes worldwide could boost the cost of carbon emissions by as much as $8 trillion; and

    • investments in low-carbon technology could reach $5 trillion.

    “Mercer's suggested realignment toward climate-sensitive assets is smart advice for investors looking to minimize risks and maximize benefits from climate change's vast investment opportunities,” Mindy S. Lubber, president of the environmental investment organization Ceres and director of the Investor Network on Climate Risk, said in a news release in response to the report. “Yet for a truly effective investment response, policymakers and regulators must ensure that investors have the information they need from companies to make prudent investment decisions.”

    The INCR is a group of 95 institutional investors that represent more than $9 trillion in assets.

    Sean Kidney, London-based manager at environmental consultant Climate Risk Europe, said at the Mercer client meeting that the report's estimates of the impact of climate change are “very conservative,” and the estimates would be much worse if secondary impacts could be modeled.

    What's needed is for institutional investor groups to proactively lobby governments to adopt climate change policies, Mr. Kidney said.

    “The longer the policy delay, the higher the impact costs will be for investors,” according to the Mercer report, “Climate Change Scenarios — Implications for Strategic Asset Allocation.” “It is therefore crucial for institutional investors to engage with policymakers on the specific details of policy plans and measures as part of their risk management process, to help protect and enhance the long-term value of the assets they oversee,” the report said.

    CO72818215.PDF

    Climate Change Scenarios — Implications for Strategic Asset Allocation

    CO72818215.PDF >
    Related Articles
    Pace of SRI asset growth surpasses broader investments
    Swedish funds form ESG, advisory pool
    ESG mutual funds outperform traditional rivals, study says
    ESG mutual funds outperform traditional rivals, study claims
    Mercer podcast on ESG in DC plan management
    ESG gains wider acceptance
    California pension funds chart ESG path in U.S.
    Search for ESG alpha continues
    ESG's road to mainstream acceptance
    ESG Special Report
    State Street, F&C to help investors meet PRI requirements
    U.K. DC plan seeks ESG services
    Recommended for You
    No P&I Daily on April 2
    No P&I Daily on April 2
    Editor’s note: Trouble accessing some stories in P&I Daily
    No P&I Daily on Presidents Day
    No P&I Daily on Presidents Day
    Innovations in DC: Helping Supercharge Retirement Outcomes
    Sponsored Content: Innovations in DC: Helping Supercharge Retirement Outcomes
    sponsored
    Events
     
     
    Sponsored
    White Papers
    Bipsync Client Stories: RMS in Action at Pensions and Superannuation Funds
    COVID-19 Makes LP Portfolio Management More Important Than Ever
    China: the outlook is bright for longer-term investors
    Finding Differentiation in Securitized Assets
    Green and sustainable bonds in emerging markets
    Portfolio Protection: One Size Fits None
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    April 5, 2021 Page One

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    pilogo-NEW
    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    150 N. Michigan Ave.
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2021. Crain Communications, Inc. All Rights Reserved.
    • NEWS
      • Asset owners and the coronavirus
      • Alternatives
      • Consultants
      • Coronavirus
      • Defined Contribution
      • ESG
      • Frontlines
      • Hedge Funds
      • Investing / Portfolio Strategies
      • Money Management
      • Pension Funds
      • People Moves
      • Private Equity
      • Real Estate
      • Searches & Hires News
      • SECURE Act
      • Special Reports
      • WorldPensionSummit
    • Data
      • Research Center
      • Searches & Hires Database
      • Searches & Hires News
      • RFPs
      • Charts / Infographics
      • Sponsored Research
      • Trackers
    • Insights
      • Opinion
      • White Papers
      • Industry Voices
      • Letters to the Editor
      • Partner Content
      • Publisher's Update
    • Multimedia
      • Videos
      • Webinars
      • Polls
      • Slideshows
      • Charts / Infographics
    • Events
      • Conferences
      • Webinars
    • Careers
    • Research Center