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Mercer (Service Provider)

Service Provider Reporting Framework 2017

You are in Strategy and Governance » Responsible investment policy

Responsible investment policy

SG 01. Responsible investment policy

01.1. Describe how your organisation’s philosophy incorporates environmental, social and governance factors, and the link to your business offerings.

          Mercer’s 'Investment Framework for Sustainable Growth' outlines how we work with our clients in each stage of the investment process, from beliefs and policy, to processes and portfolio. Additional information can be found at: http://bit.ly/2mtD9zw
        

01.2. Indicate whether you have policies that formalise the incorporation of your beliefs in your business offerings.

01.3. Indicate the components/types  of your policy

Policy components/types
          Mercer's Global Investment Beliefs
        

01.4. Indicate how these are put into practice internally across the organisation.

          Mercer's Investment Beliefs are made public and regularly used in presentations with clients.
        

01.5. Additional information [OPTIONAL]

Mercer's Global Investment Beliefs underpin our approach to setting investment strategy with our clients. In our view investment beliefs are the starting point for setting effective investment strategy, providing the guiding principles for robust investment decision making.

Mercer's investment beliefs are articulated within the following six categories, which includes ESG considerations ("sustainability"):

  • Client Objectives
  • Risk Management
  • Active Management
  • Operational Efficiency
  • Dynamic Asset Allocation
  • Sustainability

Full details of our investment beliefs can be found here: http://bit.ly/2ncwlqp.


SG 02. Publically available policies

02.1. Indicate which of your policy documents or statements (if any) are publicly available. Provide the URL and an attachment of the document.

Policy or document name
          Mercer has a set of global investment beliefs - they incorporate six core beliefs, one of which is "sustainability". These beliefs inform our discussions with clients.
        

Attachment (optional)


02.2. Additional information. [OPTIONAL]

Further details of Mercer's RI activities, including our ESG ratings, climate change research and views on ESG integration across asset classes are available here: http://bit.ly/2nRa4MZ.


SG 03. Norms used to develop policies

03.1. Indicate what standards you have used to develop your organisation’s policies. Tick all that apply.


SG 04. Policy offerings to clients

04.1. Indicate whether you offer any of the following policies to clients.

Off the shelf
Tailored
Asset class-specific RI guidelines
Sector-specific RI guidelines
Screening/exclusions policy
Engagement policy
(Proxy) voting policy
RI guidelines set out within the Investment Policy Statement (IPS)
RI guidelines set out in a freestanding RI policy
Multi-year RI implementation project plan
Conflict of interest management policy
Stockbroker allocation policy
Securities lending policy
Other, please specify (1)
Other, please specify (2)
Other, please specify (3)
None of the above

04.2. Provide a brief description of the key elements, any variations, or exceptions applying to these policies.

Across Mercer Investments, the majority of our client policy work will draw on our core documents. In addition, where more detailed, tailored policy work is developed for clients, this is typically undertaken by Mercer's Responsible Investment team and varies by region and client type.


SG 05. ESG/RI in business offerings

05.1. Describe how you include ESG/RI factors as an integral part of your business offerings.

Business area

Advisory and Consultancy

How you include ESG/RI factors

Mercer's Framework for Sustainable Growth follows a Beliefs, Policy, Process and Portfolio approach that seeks to integrate ESG considerations at every stage of the investment process. This includes:

  • Beliefs workshops and Policy development advice, sometimes on a stand-alone basis, but often alongside broader investment beliefs and policy reviews. This includes a Sensitive Investment Topics Analyser (SITA) governance tool to assist Boards in balancing risk, return and reputation on topics that require alignment with stakeholders.
  • Process advice e.g. applying Mercer's ESG Ratings, which rates how investment strategies integrate ESG throughout their investment process, to manager selection and monitoring processes; and undertaking voting & engagement monitoring and reporting
  • Portfolio advice e.g. total portfolio climate change risk assessments on a scenario basis; and integrating sustainability themed opportunities or low-carbon optimised exposures by asset class

Further information on this process is available on our website, here: http://bit.ly/2mtD9zw and here: http://bit.ly/2nR0dqn.

05.2. Describe the resources that your organisation allocates to ESG/RI offerings where these form only a supplementary ESG/RI service.

Business area

Advisory and Consultancy

Describe the resources allocated to ESG/RI offerings

In Mercer’s Investments business, we established a Responsible Investment team in 2004, which now has 13 full time equivalent staff globally and a growing group of RI 'champions' and shared resources in each region. In addition, Mercer’s 150 manager research team are directly involved in assigning ESG ratings as part of the core manager research process. We also have a group of consultants involved in the global strategic research process, who actively contribute to intellectual capital development. For example, ~30 Mercer researchers contributed to Mercer’s 2015 climate study.

In 2006 we advised on the PRI's development, and have been a service provider signatory since that time. The RI team advises a range of clients, from the industry leaders to those just starting out on ESG integration. This advice is informed by ongoing intellectual capital development in strategic research (e.g. Investing in a Time of Climate Change (June 2015)) and manager research (e.g. Mercer’s proprietary RI manager research framework) which results in an ESG rating (1-4), and our growing universe of rated sustainability themed strategies. As noted above, our manager and strategic research is developed with broad input from Mercer resources outside the RI team.

Mercer colleagues also benefit from participating in the MMC Climate Change Committee (a cross operating company committee which focuses on sharing intellectual capital across Mercer, Marsh, Oliver Wyman and Guy Carpenter) and the MMC Global Risk Centre. http://bit.ly/2nm74GI


SG 06. Outsourcing of services

06.1. Indicate whether you outsource some of your services.

Business area

SG 06.2. Outsourcing of services (Not Applicable)


SG 07. Providing training/education

07.1. Indicate whether you provide training/educational services on ESG/RI. Tick all that apply.

07.2. Describe the main components of your training/educational services on ESG/RI and any variations depending on the group you provide training/education to.

Trustee education and training is a core part of Mercer's services. Training is provided to clients on a wide range of investment issues, including ESG/RI issues. Educational sessions are tailored to specific client needs, but with regards to ESG/RI they range from introductory sessions (e.g. covering definitions and implementation approaches) to more advanced discussions on the options for accessing specific investment themes (e.g. opportunities in sustainability) or managing exposure to ESG risk drivers (e.g. climate / carbon risk reduction).

Mercer's RI team spends significant time with clients focusing on 'ESG/RI Beliefs' which we recommend as the core of any approach to RI. This draws on Mercer's 'RI Framework' which sets out a clear, stepped process for clients to follow, allowing them to develop an integrated approach to RI that fits with existing investment governance arrangements. For additional information on our RI Framework see: http://bit.ly/2mtD9zw

          Mercer's RI team provides ESG/RI training to core investment and operational staff within client organisations (in addition to trustees/board members).
        

07.2. Describe the main components of your training/educational services on ESG/RI and any variations depending on the group you provide training/education to.

As above, training is provided to clients based on specific needs and covers a wide range of ESG/RI issues. Training can be introductory (e.g. covering definitions and implementation approaches) or more advanced, such as discussing the options for accessing specific investment themes (e.g. opportunities in sustainability) or managing exposure to ESG risk drivers (e.g. climate / carbon risk reduction).


SG 08. Level of involvement in collaborative organizations and/or initiatives

08.1. Select the collaborative organisation and/or initiatives of which your organisation is a member, or in which it participated during the reporting year and the role you played.

Collaborative Organisation/Initiative

Provide a brief commentary on the level of your organisation’s involvement in the initiative [OPTIONAL]

          Mercer met with PRI representatives and provided consultation input to the development of the Service Provider Reporting; the Australian and UK Fiduciary Duty in the 21st Century roadmaps; and the 10 year roadmap. In addition, we have worked with the PRI on the TCFD and participate in the PRI Academic Working Group. We have also spoken at multiple PRI events around the world on RI and investment strategy and ESG integration in Fixed Income.
        
          IIGCC
        

Provide a brief commentary on the level of your organisation’s involvement in the initiative [OPTIONAL]

          Mercer maintains an active role in the Global Investor Coalition on Climate Change (including as a member of the IIGCC and IGCC). During the year we attended meetings and supported public policy engagement efforts (e.g. the 2016 Investor Statement), gave webinars on the TCFD, and collaborated informally on strategic issues.
        
          CDP
        

Provide a brief commentary on the level of your organisation’s involvement in the initiative [OPTIONAL]

          Mercer has been a member of the CDP since 2015.Jane Ambachtsheer serves on the board of CDP and regularly participates in Board meetings and other strategic engagements to support the organisation.
        
          Confluence Philanthropy
        

Provide a brief commentary on the level of your organisation’s involvement in the initiative [OPTIONAL]

          Mercer spoke at the annual conference.
        

08.2. Additional information. [OPTIONAL]

Many of Mercer's clients are members of these and other ESG/RI initiatives. Indirectly, our ESG/RI work with these clients supports their own ongoing contribution to, and development of, the industry as a whole.


SG 09. Applying, advancing and promoting the PRI principles

09.1. Describe how your organisation applies, advances and promotes the PRI Principles.

Mercer's RI team supports its clients, globally, on a wide range of ESG/RI implementation activities which directly support the objectives of the PRI. We have listed some examples by principle below:

Principle 1:

  • Developing ESG/RI beliefs, policies and strategies
  • Incorporating ESG/RI considerations into manager selection and monitoring
  • Assessing the materiality of different ESG issues and understanding exposure to these issues within investment portfolios e.g. climate change risk factors under different scenarios
  • Developing the means to reduce exposure to specific ESG issues / risks (e.g. "portfolio decarbonisation")
  • Allocating assets to ESG/RI and sustainable investment themes

Principle 2:

  • Establishing active ownership practices and/or requiring appointed managers to do the same, which includes policy development and regular monitoring reporting against the UK Stewardship Code or on recent voting and engagement activity.

Principle 3:

  • The disclosure required of managers as part of Mercer's ESG Ratings process is key, together with more specific reporting on active ownership, on climate change policies and activities, or in follow up dialogue on carbon footprinting or exclusions screening results.
  • Active participation on the FSB TCFD.

Principle 4:

  • In addition to being an active signatory of the PRI, Mercer also regularly works with clients during the earlier stages of their decision process (i.e. prior to them becoming a signatory) - for example, to highlight the benefits of joining the initiative and what PRI signatory status implies.

Principle 5:

  • Mercer continues to work collaboratively with many industry stakeholders to enhance the implementation of the principles. An example is the 2015 Investing in a Time of Climate Change study, which was a global collaboration of asset owners, managers and advisory group members, with much of the work made public and accessible. We continue to convene the Future Makers Working Group. We have also collaborated on research papers with various entities, including the Inter-American Development Bank, the Center for International Environmental Law, and the 2 degrees Investing Initiative. We have hosted multiple roundtables, most recently on sustainable infrastructure, and participated in a significant number of formal and informal collaborative initiatives. Our work on the TCFD is one most recent example of the significant contribution Mercer makes outside our direct client work.  

Principle 6:

  • We regularly publish articles, research and thought pieces on ESG topics.
  • Providing high quality, regular reporting to the PRI via the annual PRI Reporting Framework.

09.2. Highlight whether there are any ways that your organisation would like to engage further with the PRI. [OPTIONAL]


SG 10. Actions taken to promote responsible investment

10.1. Indicate which of the following actions your organisation has taken to promote responsible investments, independently of collaborative initiatives.

          Provided in-kind support for academic and industry research in our review time, meetings, presentations and hosting events.
        

10.2. Additional information. [OPTIONAL]


SG 11. Long term trends

11.1. Indicate which of the following long-term trends are addressed in your product outputs.

11.2. Explain how this long term trend affects your product outputs.

Changing demographics - in particular increasing longevity of pension scheme members - has a direct impact on the advice and support that Mercer provides to many of its clients (i.e. those with liabilities linked to longevity, such as pension schemes).

From an ESG perspective, all of the long-term trends listed here have a significant impact on the demand drivers for sustainability-themed investments - i.e. demographics, energy and resource demand/use and technology - as they are all linked to climate change in particular, but also broader ESG trends and investment themes, which include education, health, waste, water etc.

Mercer's ongoing intellectual capital work - from within the RI team and more broadly across the firm (particularly the MMC Global Risks Center) - explores all of these issues and is reflected in our investment advice, manager research (on the investment strategies available to clients), issue specific research (e.g. our climate change reports) and in how we monitor client portfolios.

Summaries of our work in this area can be found on the following webpages of mercer.com:

  • Mercer's investment themes and opportunities 2016 and 2017: http://bit.ly/2n6zgik (2016) http://bit.ly/2o3PVCN (2017)
  • RI materials: http://bit.ly/2nRa4MZ
  • Broader Perspective on Risk paper and video: http://bit.ly/2o1oRaN

11.2. Explain how this long term trend affects your product outputs.

See above comment, and in particular Mercer's Investing in a Time of Climate Change (2015) study.

This has added a new dimension to the services we provide clients throughout our advice on Beliefs, Policy, Process and Portfolio. The most significant addition is the climate change scenario modelling in strategic asset allocation advice, and the subsequent portfolio advice on further risk assessment, risk reduction and identifying new opportunities by asset class.

11.2. Explain how this long term trend affects your product outputs.

See comments in above two sections, and we note a particular increased focus on water, too little and too much, which connects into the climate change study work. This has been a topic at two of Mercer's Global Investment Forums in 2016 and is expected to increasingly feature in our research and advice.

Karen Lockridge, based in Canada, has also been a member of the Advisory Group for a recent Drought Stress Testing Tool project. The pilot project on Environmental Stress Testing, led by the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH and the Natural Capital Finance Alliance (NCFA), has developed an analytical framework and tool that allows banks to quantify and assess the potential impact of drought events on the performance of their corporate loan portfolio. The project has been funded by Germany’s Federal Ministry for Economic Cooperation and Development (BMZ).
http://bit.ly/2mSjitR

11.2. Explain how this long term trend affects your product outputs.

See comments in above sections, and in particular Mercer's Investing in a Time of Climate Change Study and Broader Perspective on Risk paper. We believe technology presents an underestimated disrupter and opportunity in a number of sectors and asset classes. As an example of our interest in this megatrend, we recently hosted the Carbon Tracker and Grantham Institute report launch "Expect the Unexpected: The Disruptive Power of Low-carbon Technology.


SG 12. Business certifications/accreditations (Private)


SG 13. Interaction with asset owners

13.1. Indicate whether you interact with asset owner clients.

13.2. Indicate the typical frequency and type of interactions with your asset owner clients.

Type of interaction

Frequency

Frequency

Frequency

Frequency

Frequency

13.3. Tick boxes across level of employment of investor contact (C-level, PM etc.) and subject areas typically addressed with the contact(s).

Level of employment

Subject area(s)

          All areas of investment advice and support - including ESG/RI advice - as required
        

Subject area(s)

          All areas of investment advice and support - including ESG/RI advice - as required
        

Subject area(s)

          All areas of investment advice and support - including ESG/RI advice - as required
        

Subject area(s)

          How ESG/RI is incorporated into the investment process e.g. idea generation and portfolio construction. Level of active ownership / stewardship. Views on / approach to climate risk and other ESG risks/issues.
        

Subject area(s)

          How ESG/RI is incorporated into the investment process e.g. idea generation and portfolio construction. Level of active ownership / stewardship. Views on / approach to climate risk and other ESG risks/issues.
        

Subject area(s)

          All areas of investment advice and support - including ESG/RI advice - as required
        

Subject area(s)

          All areas of investment advice and support - including ESG/RI advice - as required
        

SG 14. Aligning approach with investor goals

14.1. Describe how you align your organisation’s philosophy on and approach to ESG/RI with investor goals.

          Mercer's Global Investment Beliefs begin with client objectives at the centre of all we do. Our approach to ESG/RI is also guided by our Framework for Sustainable Growth, which follows the investment process from Beliefs to Policy, Process and Portfolio decisions - where investor goals are also the key focus in setting their beliefs and policy. Mercer's philosophy and approach to ESG/RI is all about integration - that this should be one consideration, alongside others, in each stage of the investment decision making process. We are confident investor goals are compatible with this philosophy and approach when a good governance process is adopted.
        

14.2. Additional information. [OPTIONAL]


SG 15. ESG recommendations not aligned with investor goals

15.1. Describe what steps you take, if any, when your ESG recommendations are not in line with investor goals.

15.2. Additional information. [OPTIONAL]

Mercer does not provide ESG advice / recommendations that are not in line with investor goals.


SG 16. Seeking feedback from clients

16.1. Indicate whether you seek feedback from clients on your RI/ESG services and product offerings

16.2. Describe how you use this feedback on your RI/ESG services and product offerings.

Mercer uses feedback to improve our services to clients and refine or develop new product offerings.


SG 17. Managing conflicts of interest

17.1. Indicate whether your organisation has a policy for managing potential conflicts of interest.

17.2. Describe how you manage potential conflicts of interest.

Mercer's operational guidelines and expectations are set out in our group wide code of conduct - The Greater Good. This can be found at: http://bit.ly/2miIs2a

17.3. Describe how you ensure that company employees do not derive any personal gain from the use of information collected during your work process.

Mercer's operational guidelines and expectations are set out in our group wide code of conduct - The Greater Good. This can be found at: http://bit.ly/2miIs2a


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