Institutional Investors Addressing Climate Risk

Mercer found more than half have decided to include climate change considerations in future risk management and/or strategic asset allocation processes, and half have undertaken or plan to make changes to their actual asset allocations.  

One-third of respondents have begun to or plan to allocate more to “climate-sensitive assets” (identified as real estate, infrastructure, private equity, sustainable equities (listed and unlisted), efficiency/renewables (listed and unlisted) and commodities (including agricultural land and timberland)). Eighty percent have or will increase their engagement on climate change with companies and policy makers.    

The survey was a follow-up to Mercer’s 2011 “Climate Change Scenarios – Implications for Strategic Asset Allocation” collaborative study. The study found that traditional approaches to modeling strategic asset allocation fail to take account of climate change risk; therefore, new approaches to strategic asset allocation are required to tackle fundamental shifts in the global economy.  

The 2011 report and the follow-up can be downloaded from http://www.mercer.com/climatechange.  

In January 2010, the Securities and Exchange Commission provided guidance on certain existing disclosure rules that may require a company to disclose the impact that business or legal developments related to climate change may have on its business—rules that cover a company’s risk factors, business description, legal proceedings and management discussion and analysis (see SEC Draws Attention to Climate Change Reporting).  

Mercer previously said it can provide clients with a “carbon footprint” analysis of their portfolios, and compare it to a chosen benchmark, such as the FTSE All-Share, S&P 500 or Russell 1000 (see Mercer to Size Up Carbon Footprints).