The responsible investment consulting firm says ESG factors are becoming more important to long-term investors and clients. ESG factors can be significant risk-return drivers and yet few managers integrate them into their investment process, the company says.
While the list of United Nations-backed Principles for Responsible Investment Initiative (UN PRI) signatories continues to grow, only nine percent of more than 5,000 investment strategies rated by Mercer have achieved the firm’s highest ESG scores, says Jane Ambachtsheer, Mercer’s global head of responsible investment.
Including ESG ratings in its reports will help Mercer’s clients to take environmental, social and governance factors into account when selecting and monitoring managers, she said.
Mercer assigns ESG ratings across investment styles, asset classes and geographies as part of its manager research process. Last year it reached the milestone of 5,000 ratings assigned to strategies. At the time, the company said it was the only consultant to assign ESG ratings across all asset classes.
The ESG rating — Mercer categorize managers into four groups with ESG1 being the highest rating and ESG4 being the lowest rating — sits alongside the traditional alpha rating (A, B+, etc.).
While a June report from Deloitte found that news about a company’s ESG issues can lead to financial benefits, a July study co-authored by professors at Duke University and the London School of Business suggests that symbolic ESG actions have a greater positive impact on a company’s market value than substantive actions.