The CFA Institute has released a practical resource guide for investment industry leaders and organisations that choose to engage in net-zero investing, highlighting the importance of mindset shifts and innovative strategies to achieve net zero.
Net Zero in the Balance: A Guide to Transformative Industry Thinking explores the future of net-zero investing via insights from more than 20 leading sector specialists, supporting the complex systems-level thinking and larger transformative change that CFA Institute says will be required to address net-zero ambitions.
It identifies three critical components of successful net-zero investing: the role of organising frameworks to adapt to the big shift in the investment ecosystem; the role of innovations for integrating net-zero investing into mainstream investing; and the careful balance of investment strategies between risk and return goals.
The guide also draws on its findings to offer a high-level net-zero roadmap to assist with planning and informing stakeholders, identifying and communicating net-zero priorities and goals to build clarity on what success looks like.
Margaret Franklin, president and CEO of the CFA Institute, said: “Addressing net zero within a system focused on investment risk and return represents an extraordinary challenge. As a global industry, new thinking and tools are needed to meet the unprecedented complexity and scale of the problem. Whether the motivation is financial, altruistic or both, determining a net-zero roadmap is no mean feat. Net-zero investors are looking for expert insights, educational offerings, resources and tools to help support their efforts.”
She continued: “The research and interviews undertaken for this guide indicate that the pathway to global net-zero emissions and the development of net-zero investing will be arduous and uneven. We at CFA Institute are committed to supporting the investment industry as it navigates through this deeply challenging new area.”
Key takeaways
Expanding on the three critical elements for successful net-zero investment, the report first noted organising frameworks are “essential” for putting net-zero investing into practice. Frameworks recognise net-zero investing as part of sustainable finance, with asset owners making commitments within their fiduciary responsibility and asset managers implementing these commitments.
Secondly, innovations are necessary for wider adoption of net-zero investing, including balanced scorecards to consolidate multiple measurements of progress towards net-zero goals, total portfolio thinking, universal ownership theory and an expanded version of stewardship.
Meanwhile, the strategy for asset owners in most cases must support the dual mandate of meeting net-zero goals without compromising on the highest possible risk-adjusted returns. A net-zero investment strategy, it argued, must aim to achieve alignments with government and regulators on the net-zero pathway, with investors sometimes following government, and sometimes leading government.
“Great interest exists for action on net zero across the industry and among policymakers, but the systemic barriers to achieving net zero remain deeply entrenched,” Paul Andrews, managing director for research, advocacy and standards at CFA Institute, added.
“Acknowledging that investment objectives ultimately lie with the end client, we are seeking to support investors considering net zero by researching, delivering and advocating for the knowledge, skills, tools, practices and abilities needed to analyse and act on the financial risks and opportunities associated with climate change and the net-zero transition, and believe this guide is a key contribution to the ongoing conversation on net-zero investing as they tackle the obstacles ahead.”
