Mercer has announced its commitment to a target of net-zero absolute carbon emissions by 2050 for UK, European and Asian clients with discretionary portfolios and the majority of its multi-client, multi asset funds domiciled in Ireland.

The announcement comes following the news that Legal & General Investment Management’s defined contribution (DC) business is also setting out its own short-term carbon emissions intensity reduction targets for 2050.

The consultancy said this represents a combined £31.5bn (€36.7bn) in assets under management as at 31 December 2020. To achieve this, Mercer plans to reduce portfolio relative carbon emissions by at least 45% from 2019 baseline levels by 2030.

The commitment aligns with targeting a 1.5°C limit on global temperature increases and the Paris Agreement’s ambitions, it said.

Niall O’Sullivan, chief investment officer of Mercer Europe & Asia, the Middle East and Africa (AMEA), said: “We are committing to investing for a 1.5°C scenario because robust analysis tells us it is in the best financial interests of our members and clients. Another contributing factor is the increasing demand for a rigorous and measureable approach to climate change investment that we see from pension scheme members as well as clients.”

He said Mercer’s target is underpinned by its “well-established climate change beliefs and scenario analysis” over multiple years and is supported by a climate transition plan.

“We are confident that through preparations completed across asset classes emissions in our funds can be reduced while delivering on our investment objectives,” he added.

Following a climate transition plan, Mercer will work closely with its appointed investment managers to identify and manage a staged emissions reduction plan, oversee portfolio allocations to climate solutions, and steward an increase in transition capacity across the funds.

The firm recently made a similar commitment for its Australian funds and the Mercer-managed investment options within Mercer Super.

Mercer’s Analytics for Climate Transition (ACT) tool “helps set a transition pathway and position portfolios for change. The analysis identifies portfolio companies that are high carbon and low transition through to low or zero carbon and high transition”, said Kate Brett, UK head of responsible investment at Mercer.

“This assessment allows us to manage high carbon risk and to engage with companies on their ability to support a zero emissions target,” she said.

Progress on absolute emissions and carbon intensity reductions will be monitored annually – together with analysis on transition capacity and allocation to ‘green’ solutions – using the ACT tool, launched by Mercer in November 2020.

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