I N V E S T I N G I N S U S TA I N A B L E O P P O R T U N I T I E S

H E A LT H W E A LT H C A R E E R

I N V E S T I N G I N S U S T A I N A B L E O P P O R T U N I T I E S

In the World Economic Forum Global Risks Reports for 2015 and 2016,1 the top five identified risks over a 10-year time horizon were all linked to environmental risks and climate change:

1. Water crisis.

2. Failure of climate change adaptation.

3. Extreme weather events.

4. Food crisis.

5. Profound social instability.

Furthermore, a groundbreaking study by Mercer in 2015, Investing in a Time of Climate Change,2 modeled the estimated impact on investment returns under four potential climate change scenarios. The study found that regardless of the scenario modeled, climate change had an impact on investment returns and this impact was most meaningful at the industry-sector level. The key downside risks to investors came from structural change during the transition to a low-carbon economy, when investors were unprepared for that change.

Investors should now be considering how to adapt their portfolios to both manage the environment and climate change-related risks in their portfolio and, importantly, capture the opportunities arising from change. The range of investment opportunities that can provide attractive returns to investors as part of a move to a sustainable, low-carbon economy can be collectively known as “sustainable opportunities.”

Regardless of the scenario modeled, climate change had an impact on investment returns.

1 World Economic Forum, Global Risks 2016, available at http://www.weforum.org/reports/the-global-risks-report-2016.

2 Mercer. Investing in a Time of Climate Change, 2015, available at http://www.mercer.com/insights/focus/invest-in-climate-change-study-2015.html.

W H AT A R E S U S TA I N A B L E O P P O R T U N I T I E S ?

Sustainable opportunities are investments associated with themes such as population growth, resource scarcity, and energy efficiency that will provide access to companies, assets, and projects that are expected to grow by enhancing existing technology, developing new technology, and/or finding alternative solutions to the environmental problems we increasingly face.

The return potential from investing in sustainable opportunities is founded on the continued development of a number of irrefutable, and in some cases irreversible global economic trends. The world’s population is growing rapidly, and developing countries are increasingly industrializing and changing consumption patterns. These changes raise fundamental questions about how the world’s resources will manage to feed its growing population. How will it meet its energy needs? Will there be enough clean water?

Sustainable opportunities aim to capitalize on stronger demand for:

• Food, clean water, resources, and energy.

• More efficient ways to use and adapt technologies to reduce pollution and the harmful impact of a changing climate.

• Energy sources that no longer rely on high-carbon, which cannot be sustained as the population and its appetite for energy rises.

A summary of the themes we have identified in the sustainable opportunities universe is shown in Figure 1.

Furthermore, not only can an allocation to sustainable opportunities provide access to new return drivers for investors, it can also act as a meaningful diversifier. This will help to offset the elements of an investor’s wider portfolio that will remain exposed to the impact of climate change and environmental risks.

RENEWABLE AND ALTERNATIVE ENERGY

Solar, wind, wave, biofuels, and geothermal technology

WASTE MANAGEMENT AND TECHNOLOGIES

Recycling processing, hazardous and general waste management

ENERGY EFFICIENCY

Storage plus power network, industry, building, and transport efficiency

SUSTAINABLE RESOURCE MANAGEMENT

Soil management, sustainable farming, and forest management

WATER INFRASTRUCTURE AND TECHNOLOGIES

Irrigation, storage, treatment, drainage, and flood protection

ENVIRONMENTAL SUPPORT SERVICES

Environmental consultancies, carbon trading, and diversified environmental services

POLLUTION CONTROL

Pollution control solutions and environmental testing

FIGURE 1. KEY THEMES WITHIN THE SUSTAINABLE OPPORTUNITIES UNIVERSE

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H O W C A N W E A C C E S S S U S TA I N A B L E O P P O R T U N I T I E S ?

Although investors may be able to tilt their mainstream listed equity portfolios toward sustainability themes or away from environmental risks, this will not provide access to many of the unlisted companies, assets, and projects at the forefront of enabling a move to a more sustainable, low-carbon economy. Mercer strongly believes that the most effective way to access sustainable opportunities is through private market investments, such as private equity, infrastructure, and sustainable natural resources (e.g., timber and agriculture). When building a private markets portfolio, we believe that diversification by manager, asset class, stage of investment (e.g., venture capital, growth capital), theme, and geography are critical to maximizing benefits and minimizing risks.

Figure 2 shows how investors can map asset-class exposures to themes to ensure a robust sustainable opportunities portfolio.

Many investors face difficulties when seeking to effectively implement a sustainable opportunities portfolio. Some investors may have the ability to build a direct portfolio, while other investors may be better-served by a fund of funds solution. Mercer consultants are available to discuss the suitability of sustainable opportunity strategies for your plan. Where such strategies are suitable and appropriate to your circumstances, colleagues in Mercer’s Canadian investment management business are available to discuss our sustainable opportunities fund offering.

FIGURE 2. MAPPING ASSET-CLASS EXPOSURES TO SUSTAINABILITY THEMES

Private equity

Agriculture

Infrastructure

Timber

Alternative energy

Energy efficiency

Water infrastructure and technology

Pollution control

Waste management

Sustainable resource management

Environmental support services

THEMES

ASSET CLASS

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This document is provided for informational purposes only and does not constitute a solicitation, an offer or a recommendation to buy, sell or dispose of any investment or to engage in any other transaction. It does not constitute investment advice and must not be relied on as such. Potential investors must take their own investment decisions based on their specific investment objectives, financial and tax position and using additional advice, as they believe necessary. This document may include information that is based on assumptions, models and/or analysis as well as on data provided by external sources – not all of which may be described herein. While having applied due care and diligence in preparing this document, Mercer makes no representation or warranty as to the completeness, accuracy or reliability of (i) the data processed and presented herein, (ii) the assumptions, models and/or analysis applied by it and (iii) the conclusions drawn therefrom. Any opinions expressed herein are current opinions as of the date hereof and may have become outdated by current developments or otherwise. Mercer takes no responsibility whatsoever to update this document or any of the information contained herein. Actual developments may differ materially from the opinions expressed herein. Likewise, past performance is not necessarily a guide to future performance.

Investment advisory services provided by Mercer (Canada) Limited.

Investment management services provided by Mercer Global Investments Canada Limited, a registered portfolio manager, investment fund manager, and exempt market dealer.

C O N TA C T U S

For additional information on how Mercer can help you to access this opportunity set, please get in touch with the contacts below:

Ryan Pollice Responsible Investing Leader, Mercer (Canada) Limited E: ryan.pollice@mercer.com T: +1 416 868 8857 Bill Ham Dealing Representative, Mercer Global Investments Canada Limited E: bill.ham@mercer.com T: +1 416 868 7269

Michel PietteDealing Representative, Mercer Global Investments Canada LimitedE: michel.piette@mercer.comT: +1 514 841 8909

Peter HallettDealing Representative, Mercer Global Investments Canada LimitedE: peter.Hallett@mercer.comT: +1 604 609 3737