Most European pension investors now evaluating climate risks

Research by Mercer shows that investors are now mapping climate risks more accurately.

The percentage of European pension schemes considering how climate change risks will affect their portfolios has risen from 14% to 54% over the past year, a new poll shows.

The finding, announced on Wednesday (26 August) came from investment consultant Mercer after polling 927 institutional investor clients in 12 countries, with €1.1trn in assets.

“It is encouraging to see such a strong increase in ESG risk awareness, including the potential impact of climate change, on the part of investors,” said Jo Holden, European director of strategic research at Mercer (pictured).

“It has long been our view that these factors should not be afterthoughts, but rather actively considered in all investment strategy decisions.”

Mercer found 89% of schemes now report on the risks in their portfolios relating to holdings with poor environmental, social and governance practices.

Research was conducted between the fourth quarter of 2019 and the first quarter of 2020.

See also: The evolving landscape of ESG and pensions – RLAM’s head of responsible investment reflects on a year since the DWP implemented ESG requirements in pension schemes

Holden explained that, in order to enable long-term mindset changes, investors must realise the value for themselves, however.

She added: “We can see this awareness emerging as more schemes and company sponsors witness how ESG risks in their portfolios may impact investment returns and how the company and scheme is perceived by the public.

“Investor portfolios can often be improved from an ESG perspective with only relatively minor steps, for example there are quick wins to be made by switching out a relatively small proportion of investments.”

Mercer has been increasingly engaging with its client base on climate change risks in recent years, the consulting group said in a statement accompanying its research.

Holden explained that the organisation has been encouraging schemes to consider developing a climate transition schedule for their portfolios and adopting responsible investment indices.