Mercer, backed by investors with $1.5 trillion AUM, to analyse investment risk and return under climate change scenarios
Study Partners Comment on Importance of Understanding the Strategic Asset Allocation Implications of Climate Change:
“Institutional investors require actionable information to adequately reflect climate risks and opportunities into asset allocation. While global warming is a fact, we face great uncertainty around policy measures and the financial impacts in the nearer term are little understood. The Mercer study is an important step in channeling scientific and regulatory insights on climate change into the investment process and could become a standard toolbox for the strategic asset allocation.”
Karsten Löffler, Managing Director, Allianz Climate Solutions
“The multi-scenario, forward looking approach to this study makes it unique. Investors will be able to consider allocation optimisation, based on the scenario they believe most probable, to help mitigate risk and improve investment returns.”
Brian Rice, Portfolio Manager, CalSTRS
"The Church of England Ethical Investment Advisory Group and national investing bodies are reviewing their climate change policy and this study could not be more timely for us. We are keen both to grow our understanding of the investment implications of climate change and to consider ways in which, as investors, we can help prevent dangerous climate change occurring."
Edward Mason, Head of Responsible Investment, Church Commissioners for England
"Cbus sees climate change as a significant issue for our investment portfolio over the longer term. We believe that participation in this project will give us insights into the range of impacts that climate change may have on our investments, and enable us to better prepare for the climate change-related challenges ahead."
Louise Davidson, Environmental, Social & Governance Investment Manager, Construction and Building Industry Super
“As a long-term investor, the Environment Agency Active Pension Fund recognises that climate change is a financially material risk. We have integrated the findings arising from the previous Mercer study in setting the Fund’s current investment strategy and participating in this update will allow us to build on our existing approach to managing climate risk. By adopting a strategic asset allocation that is robust in incorporating both the risks and opportunities presented by climate change, we will continue to act in the best long-term interest of our members.”
Dawn Turner, Head of Pension Fund Management, Environment Agency Pension Fund
"The results from the 2011 climate change study that we participated in showed that climate change may have large impact on our investment portfolio. Therefore, we will now participate in the follow-up study to further develop our knowledge, our methods and our risk management regarding climate change."
Mikael Angberg, CIO, First Swedish National Pension Fund (AP1).
“As a long-term, inter-generational investor, we need to understand the investment risks and opportunities associated with climate change. This project will help us calibrate our investment strategies accordingly.”
Adrian Orr, CEO, Guardians of New Zealand Super Fund
"State Super Financial Services recognises the importance of understanding climate change risks to our investment portfolios and we identified this project as an opportunity to meet this objective and further develop our broader ESG approach for our clients' benefit."
Jo Cornwell, Investment Specialist, State Super Financial Services
“Understanding the drivers of climate change risk and opportunity will be essential in enabling a sustainable economy. WWF, through our investment portfolio in the UK, is looking forward to this vital collaboration with leading global investors. This project is especially timely, given the unprecedented scientific consensus on climate change and the urgency of the active response required from a range of stakeholders."
David Nussbaum, Chief Executive, WWF-UK
Large global investors are an important stakeholder group when it comes to understanding and influencing the global response to climate change. Yet, much is unknown about the investment implications of climate change for these institutions, which are stewards of assets for billions of individuals.
To help address this gap, Mercer has initiated a new study working with institutional investment partners globally, collectively responsible for more than $1.5 trillion AUM. The study will be framed by several plausible climate scenarios with distinctive economic and market impacts, modeled out to 2030 and 2050. The study will relate these scenarios to the risk and return characteristics of key asset classes, regions and sectors.
The study, which will be published in the first quarter of 2015, builds on Mercer’s seminal 2011 collaborative project examining the strategic asset allocation (SAA) implications of various climate change scenarios and will follow the same collaborative format as the prior study. The project partners involved in the original study increased internal education and training around climate change, applied changes to strategic oversight, increased their investments in climate sensitive assets and increased their engagement on climate change.
“Our objective with this latest study is to help investors make robust, well–researched investment decisions that factor in a consideration of climate change,” said Jane Ambachtsheer, who heads Mercer’s global Responsible Investment (RI) team. “In this study, we are helping investors identify ways to hedge against climate risks as we transition to a lower carbon economy. 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,” said Ms. Ambachtsheer.
Investors participating in the collaboration represent key investment stakeholders from pension and sovereign wealth funds, endowments, insurers, private banks and investment managers. In addition to those partners quoted above, QIC from Australia is the fourth partner in the Pacific region and will provide insight from the manager perspective to the study.
Each investment partner in the full study will benefit from a bespoke report which applies the forward looking climate change scenarios to their current asset allocation and includes guidance and recommendations on how to make their investment portfolio more resilient to the financial risks posed by climate change.
The project will be delivered through collaboration between three divisions of Marsh & McLennan Companies (MMC). In addition to Mercer, NERA Economic Consulting will draw on their world-recognised expertise on the economics of energy and environmental policies to develop the scenarios and assess their potential impacts on geographic regions and sectors, analysis that will be grounded in the climate change modeling literature. Scenario impacts will be supplemented with analysis on the physical impacts resulting from climate change over the coming decades by Guy Carpenter, through their in depth knowledge of a range of climate perils, such as flooding, hurricanes, and droughts. Based on the scenario impacts developed by NERA and Guy Carpenter, Mercer will model the potential financial effects on key asset classes, regions and sectors.
Notes to Editors
Mercer is a global consulting leader in talent, health, retirement and investments. Mercer helps clients around the world advance the health, wealth and performance of their most vital asset – their people. Mercer’s more than 20,000 employees are based in 42 countries and the firm operates in over 130 countries. Mercer is a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC), a global team of professional services companies offering clients advice and solutions in the areas of risk, strategy and human capital. With 55,000 employees worldwide and annual revenue exceeding $12 billion, Marsh & McLennan Companies is also the parent company of Marsh, a global leader in insurance broking and risk management; Guy Carpenter, a global leader in providing risk and reinsurance intermediary services; and Oliver Wyman, a global leader in management consulting. For more information, visit www.mercer.com. Follow Mercer on Twitter @MercerInsights.
About Guy Carpenter
Guy Carpenter & Company, LLC is a global leader in providing risk and reinsurance intermediary services. With over 50 offices worldwide, Guy Carpenter creates and executes reinsurance solutions and delivers capital market solutions* for clients across the globe. The firm’s full breadth of services includes line-of-business expertise in agriculture; aviation; casualty clash; construction and engineering; cyber solutions; excess and umbrella; excess and surplus lines; healthcare & life; marine and energy; mutual insurance companies; political risk and trade credit; professional liability; property; retrocessional reinsurance; surety; terrorism and workers compensation. GC Fac® is Guy Carpenter’s dedicated global facultative reinsurance unit that provides placement strategies, timely market access and centralised management of facultative reinsurance solutions. In addition, GC Analytics®** utilises industry-leading quantitative skills and modeling tools that optimise the reinsurance decision-making process and help make the firm’s clients more successful. For more information, visit www.guycarp.com and follow Guy Carpenter on Twitter @GuyCarpenter.
NERA Economic Consulting (www.nera.com) is a global firm of experts dedicated to applying economic, finance, and quantitative principles to complex business and legal challenges. For over half a century, NERA's economists have been creating strategies, studies, reports, expert testimony, and policy recommendations for government authorities and the world’s leading law firms and corporations. We bring academic rigor, objectivity, and real world industry experience to bear on issues arising from competition, regulation, public policy, strategy, finance, and litigation.
NERA's clients value our ability to apply and communicate state-of-the-art approaches clearly and convincingly, our commitment to deliver unbiased findings, and our reputation for quality and independence. Our clients rely on the integrity and skills of our unparalleled team of economists and other experts backed by the resources and reliability of one of the world’s largest economic consultancies. With its main office in New York City, NERA serves clients from more than 25 offices across North America, Europe, and Asia Pacific.
*Securities or investments, as applicable, are offered in the United States through GC Securities, a division of MMC Securities Corp., a US registered broker-dealer and member FINRA/NFA/SIPC. Main Office: 1166 Avenue of the Americas, New York, NY 10036. Phone: (212) 345-5000. Securities or investments, as applicable, are offered in the European Union by GC Securities, a division of MMC Securities (Europe) Ltd. (MMCSEL), which is authorized and regulated by the Financial Conduct Authority, main office 25 The North Colonnade, Canary Wharf, London E14 5HS. Reinsurance products are placed through qualified affiliates of Guy Carpenter & Company, LLC. MMC Securities Corp., MMC Securities (Europe) Ltd. and Guy Carpenter & Company, LLC are affiliates owned by Marsh & McLennan Companies. This communication is not intended as an offer to sell or a solicitation of any offer to buy any security, financial instrument, reinsurance or insurance product. **GC Analytics is a registered mark with the U.S. Patent and Trademark Office.