Mercer introduces climate transition solution

The consultancy said its solution will help investors by constructing climate resilient portfolios on a multi-year timeframe

Mercer has introduced analytics and advice to help investors move their portfolios in line with the Paris Agreement's aim to keep global warming below 1.5 degrees.

The consultancy said its solution - Analytics for Climate Transition - will help investors including pension funds achieve this by constructing climate resilient portfolios on a multi-year timeframe.

In order to stop global warming and reach a 1.5 degree scenario, the planet needs to reach net-zero carbon emissions by 2050. The Intergovernmental Panel on Climate Change has said this requires carbon emissions to fall by 45% by 2030.

In the UK, several large pension funds and providers have this year made commitments to transition their investment portfolios to the future net-zero emissions world. But many are not yet equipped to invest in a de-carbonising economy, and some do not know where to start, according to Mercer global business leader for responsible investment, Helga Birgden.

Our analytics and advice will help investors transition their portfolios to take on the challenges of managing climate risk, in their endeavour to meet return objectives while staying on target for a net-zero outcome, she said.

The consultancy is offering the solution to its investment consulting clients across the globe, and it will also be used to support climate transition strategies for its investment solutions and fiduciary management clients.

Mercer has offered climate change analysis for some time, which is top down and asset class focused, and offers some stress testing. The new tool offers a more granular analysis to check portfolios are aligned to a particular warming pathway.

It comes as Financial Conduct Authority-regulated pension funds and occupational schemes will have to report on climate-related risks in line with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) by 2025. The TCFD recommends investors look at scenario analysis and various metrics to help report how they are progressing. Brett said Mercer's solution can also help pension funds meet these new requirements.

It will help investors set portfolio investment baselines, assess portfolio opportunities, establish targets and produce implementation plans that can be integrated with strategy and portfolio construction decisions. 

Back in July, Nest set out plans to move to its default pension strategy towards a net-zero investment portfolio by 2050, while Kempen Capital Management committed in November to have net-zero emission investments by the same year.

The BT Pension Scheme said in October it is targeting a net-zero strategy by 2035, while Aviva recently said it has set a 2050 net-zero target for its own auto-enrolment default pension funds.