Climate change could slash as much as 10 per cent off portfolios in the next 20 years, according to Mercer’s much-anticipated climate change report, the result of an 18-month collaboration with 14 institutional investors from around the globe.
With support from the International Finance Corporation and the Carbon Trust, the report, ‘Climate Change Scenarios – implications for strategic asset allocation’, had three broad objectives:
1. To investigate and analyse the potential investment risk from climate change
2. Look at the key performance drivers for markets
3. Identify scenarios around climate change that help in understanding and framing climate change as a strategic investment priority.
“It is about setting the framework so institutional investors can transform to a low carbon economy,” Danyelle Guyatt, head of global research in Mercer’s responsible investment team, said.
The report looks at the impact of climate change on investments, concluding it could contribute as much as 10 per cent to portfolio risks.
Guyatt said Mercer would research managers with the best ideas across ideas and regions, and urged investors to introduce climate risk into reviews and strategic asset allocation.
Mercer’s chief investment officer, Andrew Kirton, said investors should look to allocate more to infrastructure, real estate, private equity, agriculture land, timberland, and sustainable assets.
The 14 global institutional investors, representing more than $2 trillion in AUM, are: AP1, APG, AustralianSuper, British Columbia Investment Management Corporation, British Telecom Pension Scheme, CalPERS, CalSTRS, Environment Agency Pension Scheme, Government of Singapore Investment Corporation, Maryland State Retirement and Pension System, Norwegian Government Pension Fund, Ontario Municipal Employees Retirement System, PGGM and VicSuper.