As part of our special email bulletin counting down to the Climate Change Conference of the Parties (COP26) in Glasgow this November, we have taken a look at the net-zero announcements in May and what they mean for investors.
It seems inevitable that the number of groups pledging to reduce greenhouse gas emissions to net zero in the lead up to the November summit, which will bring countries and companies together to discuss plans to accelerate action towards the goals of the Paris Agreement and the UN Framework Convention on Climate Change.
So, ESG Clarity will be bringing you a monthly round-up of the latest commitments and pledges in one place.
Net-zero funds
Firstly, at the start of May, amid the steady stream of new ESG fund launches and sustainable rebrands, Lombard Odier Investment managers unveiled four strategies specifically targeting net zero.
The ‘TargetNetZero’ strategies cover both equities and fixed income, and aim to accelerate the rate of decarbonisation of companies within the portfolio to target net-zero CO2 emissions by 2050, which is aligned with the more ambitious objective of the Paris Agreement of limiting global warming to 1.5°C.
Investing in equities, the TargetNetZero Global Equity and TargetNetZero European Equities strategies are low tracking error strategies that tilt the MSCI World and MSCI Europe indices towards companies in climate-relevant sectors that are “aligning to the Paris Agreement through rapid decarbonisation”. The firm highlighted that while these some of these companies may be misinterpreted as laggards by investors who only consider a company’s current footprint, it is important to focus on the trajectory it is on and the targets a company may have set.
See also: – Five ways to decarbonise a portfolio: A timeline of techniques
However, the strategies will tilt away from companies in high-emitting sectors that remain poorly aligned to the transition ahead and are likely to contribute to higher levels of global warming.
On the fixed income side, the TargetNetZero Global Investment Grade Credit and TargetNetZero Euro Investment Grade Credit strategies are high tracking-error credit strategies focused on emissions-reducing companies aligned with the Paris Agreement. Lombard Odier said the strategies target a higher level of yield than the investment grade index.
Dr. Christopher Kaminker, head of sustainable investment research, strategy and stewardship at Lombard Odier commented: “The race to net zero has started, with nearly 80% of the global economy now subject to a net zero target – a stunning acceleration from 16% last year. Increased policy ambition is set to follow in the months ahead and powerful economic and market forces are now creating and destroying value across markets. As signatories of the Net Zero Asset Managers initiative, we are committed to the development of new solutions that enable clients to position capital to capture value and hedge the risks that lay ahead.”
“We recognise that to get to net zero, we cannot merely shy away from the more difficult, hard-to-abate industries. Rather, we must seek to identify those players that are emerging as the champions of the transition ahead in each of their respective sectors. Doing so requires diversified strategies that are able to distinguish the leaders from the laggards, and re-deploy capital accordingly.”
Commitments
Moving on to firms making commitments across their portfolios, this month saw commitments form PGIM Real Estate and Manulife.
PGIM Real Estate committed to being net zero in its global portfolio of managed properties by 2050, reducing emissions in the planning, construction and usage stage of its buildings.
Eric Adler, president and CEO of PGIM Real Estate, said: “We strive to meet this goal sooner. With the future in mind, and through our expanded ESG program, we’ve accelerated efforts to significantly mitigate our impact on the environment by creating a multi-year plan for our assets, which includes deep energy retrofits, on- and off-site renewable energy, green utility power, and climate risk assessments.”
PGIM Real Estate assess transportation connectivity and green building certifications of properties. It reduces CO2 by using high-efficiency cooling, LED lighting retrofits, and installing solar canopy and electric vehicle charging stations.
Manulife also committed to being net zero by 2050, with an interim goal of reducing scope 1 and 2 emissions 35% by 2035.
“We are accelerating work to reduce our own emissions and build a portfolio of climate-smart investments,” said Roy Gori, president and CEO of Manulife. “In making clear commitments on climate, we are setting a robust plan for our operations and our own investments. We are actively developing innovative products and services designed to contribute towards the urgent, global fight against climate change.”
The firm said it is taking a sector-based approach, focusing first on the heavy emitting industries, such as power generation, to establish shorter-term emissions reduction targets.
Tools
New tools measuring everything from biodiversity loss to ESG risk are being launched, and this month saw two targeted at aiding the net-zero transition. The first is a carbon reporting tool to help pension schemes align with Task Force on Climate-Related Financial Disclosures (TFCD) requirements, created by Caceis.
See also: – Two new ESG reporting tools for UK pension schemes
The second is a tool from Turnkey and Enzo Advisors that uses AI, pattern analysis and social media to enhance ESG reporting.
Tony Wines, CEO and Founder of Turnkey, said, “Working together with Enzo Advisors enables us to offer an integrated solution that not only enables the collection of enterprise data across scope 1, 2 and 3 emissions in a transparent manner but also allows us to provide a holistic, fully integrated solution to help companies meet their sustainability goals, manage risks, and develop a credible pathway to net zero.”
Read the April round up here.
