By considering a sustainable investment approach, Mercer believes asset owners are more likely to create and preserve long-term capital and meet their unique financial objectives. Environmental Finance spoke to Mercer's Hill Gaston, UK Head of Sustainable Investment and Jaimee To, Hong-Kong based Sustainable Investment specialist, about the firm's global investment beliefs in this area.

Find out more here.

Environmental Finance: As a large investment consulting firm, what role do you see Mercer playing in the transition to green and sustainable finance?

Hill Gaston: Essentially, it's about meeting each of our clients on their journey to sustainable returns to helping them achieve their ambitions as well as using our influence to move the market forward more broadly. We have a broad reach and are constantly innovating and we're looking to turn ideas into action. We work with our clients as an advisor and to help them shape their portfolios, where they're looking to implement cutting edge best practice, and innovate and introduce new methodologies in areas such as net zero target-setting, modern slavery or biodiversity. We also work with a growing number of ambitious clients that are looking to not only meet, but exceed regulations and stakeholder expectations that are pushing them to do more on green and sustainable finance.

We are practising what we preach by making net zero commitments in our Investment Solutions businesses across Australia, New Zealand, Europe and Asia. Additionally, we're able to use our influence to hold managers to higher and higher standards. What was required to achieve our top environmental, social and governance (ESG) rating today is considerably more than it was five years ago.

EF: You recently expanded your Sustainable Investment (SI) team, how does this enable Mercer to better assist its clients?

Jaimee To: I am Mercer's first dedicated SI specialist in Asia. Our SI team is expanding to improve coverage and ensure that we have enough resources and expertise for all markets globally, Asia included. Although many Asian markets used to be seen as laggards in terms of SI, it is definitely taking off now. We've seen a significant increase in client requests around ESG and climate issues, especially from larger clients such as pension schemes and local sovereign institutions.

The Asian market can vary quite a lot so it's important to have people on the ground who understand the landscape, regulations and culture and can bring solutions to help meet the future of our clients.

HG: The need for a specialist team is important but we also need to be integrated across the business. So a key focus of the core team is to work with other areas across Mercer to make sure that our investment consultant colleagues are incorporating SI into their work with clients and having a clear action plan.

EF: What benefits do Mercer's sustainable investment tools, Analytics for Climate Transition (ACT) and Responsible Investment Total Evaluation (RITE), offer to your clients?

HG: RITE is a way to evaluate investors across each element of Mercer's Sustainable Investment Pathway. This means rating investors from A++ to C¹ across four key areas; beliefs, policy, processes and portfolio - giving them insight into how they're doing and how they compare to their peers. We rolled this out, over 2021, assessing more than 650 UK occupational pension schemes, covering £250 billion ($306 billion) in assets with over 3 million members. The key finding is that there is a big difference between the leaders and those that are just starting their journey. That's equipped our investment consultants to start working with their clients on ESG plans and we expect to see a lot of that implementation carried out this year. We are shortly to release a global version of the RITE tool, and we expect this is to be introduced to other regions over 2022/2023.

JT:In terms of ACT, we have been helping clients to set their net zero goals. We work with quite a few sovereign institutions and where their country has made net zero commitments, it gives support to our clients to make those commitments as well and set interim targets. It helps to give them a multi-year phased plan on decarbonisation, as well as practical advice on how to achieve that.

EF: What are the emerging challenges in sustainable finance and how is Mercer responding to them?

JT: Climate change remains one of the key response areas, but we are also starting to place more focus on the circular economy theme. We have recently contributed to the release of a discussion paper by the Investor Group on Climate Change (IGCC) on the circular economy, where we acknowledge the importance of turning our focus to designing out waste from the system. This can help reduce methane emissions as well as reduce energy demand that goes into raw components products in the upstreams.

HG: Natural resources and biodiversity will be absolutely critical investment considerations going forward. Biodiversity loss is an area where we're fast approaching a point of no return and we're following and supporting the development of the Taskforce on Nature-related Financial Disclosures (TNFD) - the equivalent of the Task Force on Climate-Related Financial Disclosures (TCFD). What took 10 years on climate change will be really accelerated in the next two to three years in terms of biodiversity through TNFD. Physical damages from climate change aren't currently getting enough attention. We know that we are already experiencing physical damages from climate change, so how do we, as investors, think about that and adapt? We are helping investors understand physical risks through our climate change scenario modelling and ACT framework.

¹ Please see Mercer's Guide to ESG Ratings https://www.mercer.com/our-thinking/mercer-esg-ratings.html

References to Mercer shall be construed to include Mercer LLC and/or its associated companies.

© 2022 Mercer LLC. All rights reserved.

Mercer does not provide tax or legal advice. You should contact your tax advisor, accountant and/or attorney before making any decisions with tax or legal implications. This does not constitute an offer to purchase or sell any securities. The findings, ratings and/or opinions expressed herein are the intellectual property of Mercer and are subject to change without notice. They are not intended to convey any guarantees as to the future performance of the investment products, asset classes or capital markets discussed. For Mercer's conflict of interest disclosures, contact your Mercer representative or see http://www.mercer.com/conflictsofinterest

This does not contain investment advice relating to your particular circumstances. No investment decision should be made based on this information without first obtaining appropriate professional advice and considering your circumstances. Mercer provides recommendations based on the particular client's circumstances, investment objectives and needs. As such, investment results will vary and actual results may differ materially.

Investment management and advisory services for U.S. clients are provided by Mercer Investments LLC (Mercer Investments). Mercer Investments LLC is registered to do business as "Mercer Investment Advisers LLC" in the following states: Arizona, California, Florida, Illinois, Kentucky, New Jersey, North Carolina, Oklahoma, Pennsylvania, Texas, and West Virginia; as "Mercer Investments LLC (Delaware)" in Georgia; as "Mercer Investments LLC of Delaware" in Louisiana; and "Mercer Investments LLC, a limited liability company of Delaware" in Oregon. Mercer Investments LLC is a federally registered investment adviser under the Investment Advisers Act of 1940, as amended. Registration as an investment adviser does not imply a certain level of skill or training. The oral and written communications of an adviser provide you with information about which you determine to hire or retain an adviser. Mercer Investments' Form ADV Part 2A & 2B can be obtained by written request directed to: Compliance Department, Mercer Investments 99 High Street, Boston, MA 02110.