New York, February 15, 2011 - Continued delay
in climate change policy action and lack of international
coordination could cost institutional investors trillions of
dollars over the coming decades, according to research released by
Mercer and a group of leading global investors representing around
$2 trillion in assets under management.

The report stresses that climate change could contribute as much
as 10% to portfolio risk over the next 20 years, and that investors
could benefit from increased allocation to infrastructure, real
estate, private equity, agriculture land, timberland and
sustainable assets.

It also suggests that investment opportunities in low carbon
technology could be as high as $5 trillion by 2030, and that
institutional investors will have numerous options to capitalize on
opportunities and managing risks arising from climate change.

 

Andrew Kirton, Chief Investment Officer at Mercer, commented:
“Climate change brings fundamental implications for investment
patterns, risks and rewards. Institutional investors should be
factoring long-term considerations, such as climate change, into
their strategic planning. Mercer is pleased to have had the
opportunity to kick start such strategic discussions with a group
of leading global investors.”

 

The report Climate Change Scenarios - Implications for Strategic
Asset Allocation analyses the potential financial impacts of
climate change on investors’ portfolios, identified through a
series of four climate change scenarios playing out to 2030. The
report identifies a series of pragmatic steps for institutional
investors to consider in their strategic asset allocation.

In the report, a framework is outlined that can be used by
institutional investors to enhance their understanding of
climate-related investment risks and opportunities across asset
classes and regions. Mercer’s “TIP Framework” estimates the rate of
investment into low carbon technologies (T), the impacts (I) on the
physical environment and the implied cost of carbon resulting from
global policy (P) developments across the four climate
scenarios. 

 

The launch of the report and the Mercer TIP Framework represents a
collaborative endeavour led by Mercer which involved 14 global
institutional investors, and was supported by the International
Finance Corporation, a member of the World Bank Group, and Carbon
Trust.

Grantham LSE/Vivid Economics were engaged to lead components of
the research on the economic impacts of climate change scenarios
and a research group comprised of industry practitioners and
academics was consulted in the development of the model.

  

Rachel Kyte, Vice President, IFC, noted that climate change poses
significant financial and economic risks has only been accentuated
by the tens of billions of dollars in losses due to recent climate
related natural disasters such as the floods in Australia and
Pakistan and the wildfires in Russia.”

“This study makes a significant contribution to our ability to
measure the level of risk that climate change creates for
investment portfolios,’ she added, pointing out that the report
provides some practical steps that investors can take today to
shift their asset allocation to manage climate change risks and
finance the much needed infrastructure for a lower carbon
future.

“In early 2010, we set a goal to better understand how climate
change could be factored into our broad investment actions,” said
Doug Pearce, CEO/CIO for British Columbia Investment Management
Corporation (bcIMC).

“In our view, the report makes an original contribution by
giving financial meaning to recognized climate science (Stern,
IPCC) and provides ideas on constructing portfolios acknowledging
climate trends. It also raises many more questions and hopefully
will stimulate additional in-depth work around investment capital
and climate change,” he added.

href=”http://www.mercer.com/referencecontent.htm?idContent=1407200”
target=”_blank”>The report is available for download
here.