Global systemic risks could significantly influence investor returns and long-term objectives in both positive and negative ways. Asset owners such as sovereign wealth funds, pension funds, endowments, foundations and insurers should to understand what these risks are, along with the opportunities they may also bring, and implement an efficient strategy to integrate them into their portfolios. Due to the fast pace at which trend-linked risks and opportunities arise, we believe investors need to take a disciplined approach to integrate and measure these solutions in their strategic portfolio construction processes.
In 2020, we launched the Transformational Investing – Converting Global Systemic Risks Into Sustainable Returns report, which focused on the six major risks identified as most relevant by long-term asset owners. The report featured detailed insights on each risk, along with associated case studies, acknowledging their varying importance to different asset owners based upon their specific objectives, constraints, mandate, vision, and governance structures. In partnership with the World Economic Forum, GIC and 60 global asset owners, we launched a new report that explores how asset owners are addressing these trends within their organizations.
To highlight what we found advanced asset owners were doing, we developed a framework for addressing global systemic trends that investors can use to benchmark their progress against their peers. The framework focuses on vision, governance and implementation approaches. Investors should take a disciplined approach to integrate and measure trend-linked products in their strategic portfolio construction processes.
“It is only when we come together with a long-term perspective, share best ideas, and co-create better solutions, that we as a global investment community can succeed – and succeed sustainably – in the years to come” Lim Chow Kiat, CEO, GIC
After conducting more than 180 interviews with investment community members over the past two years1 we have defined a five-step governance process asset owners can use to address these critical global systemic trends. Three vital organizational processes overlay the steps: vision, governance, and implementation.
While some asset owners are mindful of their progress in integrating these trends into their strategies and portfolios, many are less aware of how they compare to peers. Without a benchmark, asset owners cannot accurately assess their practices relative to industry-leading approaches.
There are various ways “developing” versus “advanced” asset owners approach the global systemic trends. “Advanced” generally describes asset owners that have already invested substantial time and resources to develop and maintain a transformational investment approach that addresses a global trend into systemic implementation. “Developing” refers to asset owners that are just beginning to address these global trends or that do not yet have a robust and systemic approach. The report includes several practical case studies.
Highlighted below are the key factors across an asset owner’s vision, governance and implementation approaches that differentiate an investor’s progress. By referencing these subcomponents, asset owners can self-assess their level of advancement on a particular trend.
Take climate action as an example: Many asset owners are still at the “developing” stage. Advancing from this level typically requires, at a minimum, the vision and supporting mission statements and objectives to capture the relevance of climate considerations. The effort needed to achieve this is multifaceted and organizationally intensive as it involves reflection on mission, beliefs and values, and demands buy-in from stakeholders and leadership. It also requires a full assessment of the challenge of how to integrate climate considerations into fiduciary duties and investment strategies.
Investors are accessing products that address the trends in a range of ways. For example, they are investing in low carbon indices, sustainable protein and green property to address climate change, and cybersecurity and robotic funds to target technological evolution. Product evolution has accelerated as asset owners engage managers to align with the Sustainable Development Goals – and this trend continues. Download the Investment Products Related to the Trends table to help you identify the potential opportunities and strategies based on asset type and trend.
References to Mercer shall be construed to include Mercer LLC and/or its associated companies.
© 2021 Mercer LLC. All rights reserved.
[Exclude this sentence if for public consumption] This contains confidential and proprietary information of Mercer and is intended for the exclusive use of the parties to whom it was provided by Mercer.
This content may not be modified, sold or otherwise provided, in whole or in part, to any other person or entity without Mercer's prior written permission.
Mercer does not provide tax or legal advice. You should contact your tax advisor, accountant and/or attorney before making any decisions with tax or legal implications.
This does not constitute an offer to purchase or sell any securities.
The findings, ratings and/or opinions expressed herein are the intellectual property of Mercer and are subject to change without notice. They are not intended to convey any guarantees as to the future performance of the investment products, asset classes or capital markets discussed.
For Mercer’s conflict of interest disclosures, contact your Mercer representative or see https://www.mercer.com/conflictsofinterest.
This does not contain investment advice relating to your particular circumstances. No investment decision should be made based on this information without first obtaining appropriate professional advice and considering your circumstances. Mercer provides recommendations based on the particular client's circumstances, investment objectives and needs. As such, investment results will vary and actual results may differ materially.
Information contained herein may have been obtained from a range of third party sources. While the information is believed to be reliable, Mercer has not sought to verify it independently. As such, Mercer makes no representations or warranties as to the accuracy of the information presented and takes no responsibility or liability (including for indirect, consequential, or incidental damages) for any error, omission or inaccuracy in the data supplied by any third party.
Not all services mentioned are available in all jurisdictions. Please contact your Mercer representative for more information.
Certain regulated services in Europe are provided by Mercer Global Investments Europe Limited and Mercer Limited.
Mercer Global Investments Europe Limited and Mercer Limited are regulated by the Central Bank of Ireland under the European Union (Markets in Financial Instruments) Regulation 2017, as an investment firm. Registered officer: Charlotte House, Charlemont Street, Dublin 2, Ireland. Registered in Ireland No. 416688. Mercer Limited is authorized and regulated by the Financial Conduct Authority. Registered in England and Wales No. 984275. Registered Office: 1 Tower Place West, Tower Place, London EC3R 5BU.
Investment management services for Canadian investors are provided by Mercer Global Investments Canada Limited. Investment consulting services for Canadian investors are provided by Mercer (Canada) Limited.
Investment management and advisory services for U.S. clients are provided by Mercer Investments LLC (Mercer Investments). Mercer Investments LLC is registered to do business as “Mercer Investment Advisers LLC” in the following states: Arizona, California, Florida, Illinois, Kentucky, New Jersey, North Carolina, Oklahoma, Pennsylvania, Texas, and West Virginia; as “Mercer Investments LLC (Delaware)” in Georgia; as “Mercer Investments LLC of Delaware” in Louisiana; and “Mercer Investments LLC, a limited liability company of Delaware” in Oregon. Mercer Investments LLC is a federally registered investment adviser under the Investment Advisers Act of 1940, as amended. Registration as an investment adviser does not imply a certain level of skill or training. The oral and written communications of an adviser provide you with information about which you determine to hire or retain an adviser. Mercer Investments’ Form ADV Part 2A & 2B can be obtained by written request directed to: Compliance Department, Mercer Investments, 99 High Street, Boston, MA 02110.