Mercer offers proof sustainable portfolios will outperform

Study finds sustainable portfolios likely to outperform standard portfolios by 0.2 per cent, every year, until 2030


Joe McGrath

Investors should embrace the required steps to reduce carbon emissions by 2050, if they want to see higher returns “for nearly all asset classes, regions and timeframes,” a study has suggested.

Mercer’s 94-page research report entitled Investing in a Time of Climate Change – The Sequel (see here) was published on Monday (9 April). It found that supporting companies in limiting carbon emissions, and protecting against a global rise in temperatures by no more than 2°C by 2050, could significantly benefit investors.

“It’s an opportunity, since although incumbent industries can suffer losses in a 2°C scenario, there are many notable investment opportunities enabled in a low-carbon transition,” Mercer’s global business leader for responsible investment, Helga Birgden, said in a media statement accompanying the report.

“The modelling shows that greater inclusion of sustainable assets into portfolios can enhance returns. The evidence is compelling and reinforces the findings made in Mercer’s 2015 climate change report, supporting greater urgency for action to achieve a well-below 2°C scenario.”

The report underscores that global temperatures are already 1°C higher than pre-industrial levels and recognises that extreme weather events have become more frequent, bringing with them significant human and financial costs.

Mercer’s analysis of future investment opportunities and threats were based on several future scenarios, with average temperatures rising by 2°C, 3°C or 4°C by 2050. It looked at how each scenario would impact a portfolio of assets, and scrutinised how sensitive each sector is to specific risk factors.

It concluded that “transition opportunities” exist for investors who choose to invest in solutions or technologies which will be required in the future. It suggests that a sustainability themed portfolio would outperform a standard portfolio by 0.20 per cent every year until 2030.

“This is clearly a fiduciary issue as it is about managing risk as set out in the World Economic Forum’s 2019 report,” Mercer’s global head of investment research, Deb Clarke said.

“Asset owners should consider climate change at every stage of the investment process, from investment beliefs, policy and process to portfolio construction decisions.”

The full report is available here.

The executive summary is available here.

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