Home' Superfunds : Superfunds August 2018 Contents change as market participants focus increasingly on holistic thinking and
systems changes. Research shows that the 60 fastest growing sustainable
market opportunities related to delivering these goals could potentially
generate revenues and savings of $12 trillion by 2030 and have the
potential to create approximately 380 million jobs. Over 50 per cent of these
opportunities are based in developing countries.
Furthermore, the Paris Agreement has created momentum around
investment opportunities related to the transition to a low carbon economy
which we believe has only just begun. For example, research has shown
that in 2000, renewable energy represented less than one-fifth of total fuel
sources. According to the International Energy Agency’s Global Energy &
CO2 Status Report 2017, renewables now account for 25 per cent of global
electricity generation and saw the highest rate of growth of any energy
source in 2017.
INCREASING OPPORTUNITIES IN SUSTAINABILITY THEMES & IMPACT
From Mercer’s perspective, the investment universe is growing rapidly. A
number of long-term opportunities in sustainability-themes and impact
investments can be accessed via private markets, ranging from renewable
energy to water, social housing, affordable and accessible healthcare, waste
management, and sustainable agriculture and timber. We have also seen
innovative ideas emerging in other asset classes such as:
1. active listed equity strategies where portfolio managers are investing in
companies positioned to address the SDGs
2. fixed income through green and sustainability bond strategies, and
3. passively managed strategies tracking a broad range of low carbon and
These themes represent a small subset of our overall Global Investment
Manager Database (GIMD) but there appears to be significant interest
from asset owners to understand the evolving opportunity set. To put this
in perspective, GIMD houses over 31,000 investment strategies across
more than 6,000 asset managers globally. Of this, only approximately
500 strategies (of institutional quality) have some specific sustainability
focus on the investment philosophy. This means, less than 2 per cent of all
investment strategies listed in the Mercer database actively focus on the
revenue opportunities provided by environmental, social and/or governance
themes. In our view, this highlights the diversification benefits of investing
in sustainability themes, and we believe the opportunity set will continue to
grow as demand increases.
Lastly, asset owners are increasingly allocating to these areas. Responsible
investment strategies now account for 26 per cent of all professionally
managed assets globally, totalling US$22.82 trillion (GSIA Global Sustainable
Investment Review 2016). Locally, RIAA’s Super Fund Responsible Investment
Benchmark Report 2018 finds that 81 per cent of Australia’s largest super
funds are committed to responsible investment (up from 70 per cent in
2016), and 62 per cent report annually on activity, highlighting how deeply
responsible investing has become part of Australian investment markets.
Responsible investment is not all or nothing. It is not about being a leader on
day one or letting the loudest external voices dictate your approach. Nor does
building an RI strategy mean raising your head above the parapet to become
a target, or locking yourself into unrealistic or unhelpful commitments.
Responsible Insvestment is about establishing an approach that reflects the
identity and mission of your organisation, then implementing your strategy
through a comprehensive investment and monitoring system process.
But change starts with you. At Mercer, we think true leadership is about
seizing the opportunities that arise from change – what we call ‘Business As
Different’. In order to have investment resilience going forward, boards need
to be up to speed with the pace of change when it comes to sustainable
investing and good investment stewardship. It’s exciting to see many super
funds moving into this space and we expect many in the market will follow.
Alexis Cheang is partner, responsible investment at Mercer Investments.
Superfunds August 2018
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