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 endeavor 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.
Head of responsible investment for Europe Kate Brett told PP that investors should not be naïve about the challenge of transitioning their portfolios. "Net zero is a very good ambition and we're increasingly wanting to set targets and help clients with those - but it's not always that easy. However, there's a lot that can be done."
A lot of clients do not know if they are on track for the 45% reduction in carbon emissions by 2030 as they have never done the analysis on what their carbon emissions now and what they were back in 2010, added Brett.
"Clients are asking what they need to do over the next five years or ten years to be on the transition pathway," she said. "The majority of targets that we're seeing from investors are lined with the broader 2050 target, but we do also have some clients that have targets sooner than that."
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.
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