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How to change the world one investment at a time

01 Feb 2022

Each month, Mercer brings together in-house experts, employee advocates and external thought leaders for an online discussion of the most pressing issues. The program is called #MercerChats and takes place entirely on Twitter, where individuals around the world engage with Mercer’s intellectual capital and other leading thought leadership to share insights and discuss some of what we believe are the best solutions to help organizations thrive. Below is a summary of our January 2022 tweet chat, highlighting some of the key themes discussed and insights shared.

By their very nature, investments carry the power of changing our future. Whether it’s an individual saving for their child’s education or a chief investment officer allocating pension capital, how and where we invest can have profound impacts on the future.

But what if investments can impact more than the investors? Across the world, a new school of thinking is on the rise as investors, fiduciary managers and other stakeholders begin to question not only how well their money is doing but what their money is doing.

This is a profound shift for the global investments industry, where since the dawn of time success has been measured almost exclusively in financial performance. Accelerated by the pandemic and social instability around the world, many are now looking for their portfolios to make a real impact and meaningful change on the world around them.

To get a better sense of this phenomenon, we gathered some of the world’s leading minds on the future of global investments to discuss how this is redefining the industry. Including both world-class investment professionals and globally-recognized thought leaders, the conversation yielded fascinating insights, and below are just a few key takeaways.
 

ESG is table stakes

Attention to environmental, social and governance issues is higher than ever for almost all industries, and investments is no exception. In the last few years we’ve seen a non-stop stream of corporate announcements about net zero and carbon neutral goals, some of which are more meaningful than others. But rather than unpack the minutiae of what ESG really means for global investors, it’s meaningful to step back and appreciate the broader tectonic shift happening across the industry: ESG is no longer an option.

So what’s pushed the global investment industry to adopt ESG principles en masse? Predictably, the markets. As Xavier Gomez shared, climate considerations have become a critical part of risk analysis and planning for any investor, and more and more clients around the world are conscious of the social impact of their investments. Investment professionals that overlook them may risk not only their clients’ money but the opportunity to win clients in the first place.

But it’s not enough to act sustainable. Wilko Wolters shared how “optimization” of disclosures creates opportunity for greenwashing that undermines the entire movement, and it’s time to define what “sustainable” really means. In doing so, Helene Li noted that investors will be empowered to set new standards for the industry and drive new priorities in the future. 

The more extreme and frequent weather events get, the higher the financial damage associated on property, but also on other parts of our economy.

Xavier Gomez

Focusing primarily on ESGs has led to unintended allocations. Companies have "optimized" disclosure of their ESG metrics - about 90% of S&P 500 companies publish sustainability reports. Visibility is often achieved primarily through communication measures. It is appropriate to take a closer look at what is labeled as sustainability.

Wilko Wolters

Flexibility and variety in risks appetite will be key features where private markets can help drive ESG, Sustainability, & sustainable finance, And the power of investors cannot be under estimated.

Helene Li


Tech’s having a moment

When COVID-19 forced a global shutdown, tech stepped in to keep the world moving. From Zoom to Netflix to Peloton, technology firms found themselves able to deliver remote services at scale during a time when they were needed most. As Patricia Schouker noted, this led to a massive spike in tech stocks in 2020, all of which was made more outstanding against the backdrop of massive loses elsewhere in the market.

Two years later, we’re in a very different landscape. Although COVID continues to wreak havoc on the worlds of business and investments alike, markets have in many ways adjusted to the “new normal”. For tech stocks, this means a return to earth via enormous selloffs that Ian Gertler described as the natural next step in cyclical level-setting. After riding the wave to new highs during the pandemic, it’s expected that these stocks would resettle, and Cara Williams flagged this as another example of why it’s so critical to enlist the help of professional, experienced managers to navigate the markets. Without them, it can be harder than ever to see the rise and fall of market bubbles.

It's been a brutal year for sure but #2020 was thus the best of all possible worlds for tech: Combine accelerating growth with low interest rates, voila! A massive spike in technology stocks in 2020.

Patricia Schouker

Tech selloff continues today! Some is warranted via increased competition and areas like inflationary concerns or even regulation, but often just cyclical level-setting. Digital transformation will continue, with old behemoths and new start-ups (+ M&A).

Ian Gertler

Tech benefitted from Covid & had the opportunity to innovate along with changing needs of users-there will always be volatility but best to rely on experienced managers who have access to get transparency to make those decisions.

Cara Williams
 

Volatility, Inflation & Innovation

If markets have settled into a new post-pandemic landscape, there may be a few new features that are unwelcome to many investors. Following near-unprecedented influxes of capital by central banks to keep economies moving, inflation has returned as a core consideration for any investor, with Damien Davis describing it as the key theme for 2022. Martyn James doubled down on this during our discussion, sharing how the end of sweeping stimulus packages could lead to higher taxes, interest rates and inflation, all of which is a potential recipe for recession. Is it time to batten down the hatches?

Not so fast, says Tess Page. Even if economic forces were conspiring to create a recession, the unknowns are too great to predict with any certainty what will happen next. In these environments, risk hedging is vital, and the right investment strategists will know how to balance these exposures without closing off avenues to future gains. As Janet Schijns shared, private markets could be the answer here, as they offer more time, creativity and flexibility to investors looking for long-term return potential.

Inflation (transitory vs non transitory) and Central Banks' willingness to tackle inflation is the key theme for 2022.

Damien Davis

If we are at the end of covid the huge amount of stimulus that has been put into economies may come to an end. We may be left with higher taxes, higher interest rates and inflation. It could lead to a recession and is a risk for markets.

Martyn James

A huge talking point for investors that haven't hedged inflation risks. The real answer is nobody really knows what's next (shocking news, I know!), so investors should think about the downside risk they can tolerate & design strategy from there.

Tess Page

Often private markets allow for more time, creativity and flexibility to create an impact while also providing a return on the investment long term.

Janet Schijns

 


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