Advancing Best Practices: Climate Change Investment Risks and Opportunities


Mercer and the Center for International Environmental Law (CIEL) for their Trillion-Dollar Transformation initiative launched in Q3 2016, which included two reports detailing the financial and legal challenges climate change presents for pension fund trustees and managers and recommending tools for addressing those challenges.

"Climate Change Investment Risk Management for US Public Defined Benefit Plan Trustees" by Mercer identifies approaches trustees can use when considering investment risks from climate change and suggests governance and quantitative frameworks to inform action. The companion legal analysis by CIEL, "Fiduciary Duty, Divestment and Fossil Fuels in an Era of Climate Risk," reviews how climate change may affect the fiduciary duties of pension fund trustees and concludes that failing to respond climate-related financial risks may be a breach of these duties. Among the recommendations: reducing exposure to climate vulnerable assets, hedging against climate risk by investing in renewable energy and other climate-resilient assets and "actively engaging as a shareholder with owned companies."

Mercer is a global consulting and professional services firm focused on health and benefits; wealth and investments; workforce and careers; and mergers and acquisitions. The firm is a subsidiary of March & McClennan Companies, which reported $3.135 billion in revenue for Q3 2016, including $1.109 billion for Mercer. Nonprofit CIEL works to protect the environment, promote human rights, and ensure a just and sustainable society through legal counsel, policy research, analysis, education, training and capacity building.

Sustainalytics, a responsible investment ratings and analytics firm, for highlighting the risks and opportunities for institutional investors associated with climate change. In 2016, Sustainalytics published a "10 for 2016" report showcasing the diversity of approaches being taken by large companies to address the challenges posed by climate change. The report focused on companies such as Tesla, Borregaard and Cisco, which Sustainalytics says are "likely to thrive" under the GHG mitigation scenarios envisioned in the Paris Agreement, as well as carbon-intensive energy companies Origin Energy and RWE that are facing challenges in adapting to climate change regulations.

In another 2016 report, "Water Scarcity: Will Investors be Left High and Dry?" Sustainalytics forecast that water scarcity would lead to a "complete overhaul of water management and pricing practices" and investment of up to $25 trillion in water infrastructure spending in the years ahead. The analysts also expect a "major ramp-up in investor activity on water themes in the next few years, driven by the sheer extent of the water scarcity problem and growth in demand for technologies that promise more efficient consumption or new supply."

With 14 offices globally, Sustainalytics partners with institutional investors that integrate environmental, social and governance information and assessments into their investment processes. The firm has more than 300 staff, including 170 analysts with expertise across more than 40 sectors.