Mercer has launched analytics and advice for institutional investors wanting to transition to a 1.5°C global warming scenario as outlined in the Paris Agreement.
The consultancy said it launched the solution, which it has dubbed Analytics for Climate Transition (ACT), because institutional investors were seeking ways to assess the companies they are invested in with respect to their commitment and ability to, transition to a net-zero economy by 2050, “with an important milestone of 45% emissions reduction by 2030”.
Mercer said ACT is being offered to its investment consulting clients worldwide and will be used to support climate transition strategies across its $304.5bn (€253.5bn) of global assets under management on behalf of its investment solutions clients.
“Many investors are not yet equipped to invest in a decarbonising economy, and some don’t know where to start,” said Helga Birgden, global business leader for responsible investment at Mercer.
“Our analytics and advice will help investors transition their portfolios to take on the challenges of managing climate risk, in their endeavor to meet return objectives while staying on target for a net-zero outcome.”
The consultancy’s framework and analytics draw on multiple data providers and metrics to assess portfolios across a spectrum of carbon risk, with portfolios ranked from low transition capacity to investments that are low carbon risk/zero carbon already, or are providing climate solutions. It said the majority of companies in investor portfolios fall somewhere in between the two sides.
“The analytics and advice builds on Mercer’s pioneering climate scenario analysis and aims to support investors in setting net-zero targets, outlining a pathway to net-zero and measuring their progress as the transition progresses,” said Kate Brett, head of responsible investment, Europe, Mercer.
Clear investor guidance among voluntary carbon markets taskforce recommendations
The Taskforce on Scaling Voluntary Carbon Markets, a private sector-led group initiated by former Bank of England governor Mark Carney, has called on investor groups to send a “clear demand signal” on offsetting.
The recommendation is one of many included in a proposed blueprint for building a fully functional voluntary market in carbon credits, which it said will be critical to reaching net-zero and net-negative emission goals.
“Aligned investor guidance on the role of voluntary offsetting can be a powerful lever to help grow demand,” the taskforce said.
It recommended that investor alliances such as the Institutional Investors Group on Climate Change and Climate Action 100+ “acknowledge that while emissions reduction remains the priority for corporates, offsetting plays a limited but vital role in achieving the Paris Agreement ambition”.
This could be enacted by the investor groups developing clear guidance for corporates, consistent with the principles laid out by the taskforce.
The taskforce was convened in September against the backdrop of increasing private sector commitments to net-zero emissions by no later than 2050, and investor demand for credible transition plans.
The legitimacy of offsetting – as distinct from direct emissions reductions by corporates – is contested. Some fear that legitimising it will disincentivise corporate action to drive emission reductions.
“Voluntary carbon markets must not disincentivise companies’ own emissions reduction efforts”
Taskforce on Scaling Voluntary Carbon Markets
According to the taskforce, there are “potential misconceptions on the role of offsetting in supporting a 1.5°C pathway”, but also “valid concerns regarding the robustness of carbon credits”.
It said its work was “predicated upon the principle that voluntary carbon markets must not disincentivise companies’ own emissions reduction efforts”.
According to the taskforce and others, many companies, in particular those in so-called hard(er)-to-abate sectors such as steel and cement, will need to turn to offsetting because of technological constraints limiting their ability to decarbonise operations and supply chains.
The taskforce said it did not take up the issue of the appropriate role of offsetting in decarbonisation strategies, and “defers to those experts on how companies can best achieve emissions reductions”.
Other topics addressed in the taskforce’s consultation document include “core carbon principles”, exchange-traded core carbon reference contracts, infrastructure, and market integrity.
The consultation is open until 10 December, with a final report to be issued in January 2021.
“While the Taskforce has drawn on the expertise of its diverse membership, it is important that it now receives feedback from participants across the carbon value chain,” said Carney, UN special envoy for climate action and finance adviser to the UK prime minister.
“Responses to the consultation survey will be invaluable in moving from blueprint to a pilot market and, ultimately, to building these voluntary carbon markets to the scale required to support the whole economy transition required to achieve net-zero.”
Closing a major green finance conference today, the mayor of the City of London said: “Before COP26, I believe we can progress a pilot offset market, hopefully in London.”
Portfolios companies’ net-zero commitments often imply use of offsets