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Mercer (Service Provider)

Service Provider Reporting Framework 2017

You are in Advisory and Consultancy » Strategic asset allocation

Strategic asset allocation

AC 07. ESG incorporation into strategic asset allocation

07.1. Indicate whether you incorporate ESG into your strategic asset allocation process.

07.2. If yes, describe how ESG is incorporated into your asset allocation services.

          ESG is incorporated into SAA decisions in two key ways:
1) Total portfolio climate change risk assessment on a scenario basis. Mercer's SAA modelling tools now incorporate climate change risk factors and scenarios and can estimate an additional climate impact on return to assist clients to consider climate impacts alongside other investment factors when making SAA and portfolio construction decisions within asset classes. This research was launched publicly in 2015. 
2) Portfolio construction advice on ESG and sustainability themes integration by asset class, which has been formally documented and rolled out globally since 2014.

While these processes and services have been established in an integrated, globally approved, systematic way, we acknowledge that the take-up by consultants and clients is not 'mandated' and there are variations by client type and region as to how ESG is incorporated and adopted within the SAA process.

07.4. Additional information. [OPTIONAL]

AC 08. Scenario analysis and/or modelling

08.1. Indicate whether your organisation executes scenario analysis and/or modelling in which the risk profile of future ESG trends at the portfolio level is calculated

08.2. Additional information. [OPTIONAL]

Mercer's Investing in a Time of Climate Change study and subsequent integration into SAA modelling tools in multiple regions, adopts a forward looking approach to four risk factors under four climate change scenarios out to 2050. Analysis is conducted at a total portfolio, asset class, and industry sector level.

AC 09. Demonstrating value on asset allocation

09.1. Describe how you measure, track or otherwise demonstrate your value on asset allocation activities.

          Mercer encourages its clients to actively engage with us to understand and evaluate the quality of our asset allocation advice. 
All of our clients, regardless of their size and the service being provided, receive appropriate and tailored materials on the performance of the advice that we provide (often shown through case studies of existing clients relevant in size and experience to them).

At the outset of a client relationship, we establish a “journey plan” reflecting the client’s objectives, strategy and timeframes. With each client, we consider how our advice and service is appropriate for their particular circumstances and we work with them to arrive at a suitable strategy taking into account factors such as their risk tolerance, liquidity needs and tolerances relating to governance and complexity, as well as, where relevant, the fit with the client’s wider portfolio and, for Defined Benefit (DB) pension schemes, the covenant available. We then monitor the performance of our client’s investments so that we are well-placed to report to the client and they in turn can assess and challenge our performance.

For DB schemes, we monitor the performance of our clients’ assets relative to their liabilities to identify the change in pension scheme funding level and the underlying reasons for this change – for example, whether it is caused by asset growth (which will be a function of strategic decisions, manager performance or funding inflows) or liability movements (which could be driven by changes in interest rates, expected inflation, or demographic factors). Our monitoring takes both quantitative and qualitative factors into account, including, where appropriate, comparisons against appropriate peer groups so that clients are able to benchmark the performance of their scheme against other comparable schemes.

09.2. Additional information. [OPTIONAL]