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 April 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.
Taking a look at some of the big announcements of the month, most notable is the UN-convened Net Zero Banking Alliance (NZBA), which brought together 43 of the world’s biggest banks to work with the UN Environment Programme Finance Initiative (UNEP FI).
The NZBA will focus on delivering the banking sector’s ambition to align its climate commitments with the Paris Agreement goals through collaboration, rigour and transparency, according to the UNEP FI.
All the banks have committed to setting 2030 net zero targets within the next 18 months and many other pledges, which have been covered in detail by ESG Clarity’s sister publication Expert Investor.
Together with the UN-convened Net-Zero Asset Owner Alliance, which was launched in 2019, the NZBA also announced its part as founding members of the Glasgow Financial Alliance for Net Zero (GFANZ), set up by former bank of England governor Mark Carney, who is now adviser to UK prime minister Boris Johnson ahead of the COP26 summit in Glasgow this November.
Commenting on the launch, the prime minister said: “Uniting the world’s banks and financial institutions behind the global transition to net zero is crucial to unlocking the finance we need to get there – from backing pioneering firms and new technologies to building resilient economies around the world.
“The Glasgow Financial Alliance for Net Zero will lead this charge ahead of COP26 to scale-up our ambition, accelerate our shift and help us to build back greener together.”
See also: – Carney: We need the whole economy to support transition to net-zero carbon
Looking at individual firms, on 13 April, Bank of America pledged to deploy $1trn by 2030 in its Environmental Business Initiative to accelerate the transition to a low-carbon, sustainable economy.
After announcing in February 2021 its commitment to net-zero emissions in financing activities, operations and supply chain before 2050, the group said it is expanding on that by dedicating $1trn to provide lending, capital raising, advisory and investment services, as well as develop financial solutions and drive innovation, which it said will “spur transformative change” and is aligned with the UN’s Sustainable Development Goals (SDGs). The group has already deployed more than $400bn to low-carbon sustainable business activities since launching the Environmental Business Initiative in 2007, so the additional resources take this a significant step further.
Bank of America vice-chair, Anne Finucane, who leads the company’s ESG, sustainable finance, and public policy efforts, commented: “The private sector is well-positioned to ensure that the capital needed – at the scale it is needed – can drive the transition to a low-carbon, sustainable economy.”
MSCI has also announced a step up in its net-zero efforts. Previously, it had pledged to reduce by 2035 the company’s Scope 1 and 2 emissions by 50%, and Scope 3 emissions by 20%, but upgraded this to commit to the goal of net-zero emissions before 2040.
Chair and CEO of MSCI Henry Fernandez said the move means the firm is playing its part in “unshackling the world from the fossil fuel era and ignite a new world of sustainable growth”.
To achieve this goal throughout MSCI’s global operations, MSCI will prioritise:
- Reducing emissions: accelerate carbon-reduction initiatives focusing on the most material and controllable emissions, such as electricity consumption, business travel and employee commutes; favour green-certified buildings for MSCI offices, promote a flexible working environment for employees, encourage virtual meetings and low-carbon options for business travel.
- Engaging suppliers: tackle emissions in the MSCI supply chain and prioritise engagement with major suppliers to achieve shared net-zero goals.
Russell Investments also set net-zero targets for its investment portfolios globally, which have $327bn in assets under management. The group pledged to ensure the portfolios were carbon neutral by 2050, and also highlighted it had recently joined the Net Zero Asset Managers Initiative, a group of international asset managers committed to supporting the goal of net-zero greenhouse gas emissions by 2050 or sooner.
Michelle Seitz, chair and CEO of Russell Investments, said: “We don’t take this pledge lightly. We will work to evolve our investment approach and take the necessary steps to achieve this net-zero goal while continuing to deliver on our fiduciary obligations to clients.”
The group is adding roles to its responsible investing team and establishing a global taskforce to develop a net-zero emissions transition plan, which will include set interim targets created in collaboration with clients.
It also said it will set a similar net-zero goal for its business operations. “We will hold ourselves to the same standard as the companies we invest in by committing our global business operations to be carbon-neutral by the end of this decade,” Seitz said.
The Net Zero Asset Managers Initiative was initially unveiled in December 2020 with 30 fund firms around the world becoming founding signatories. In an update released on 20 April, it was revealed that 87 investors representing $37trn have now committed.
Three of the world’s largest asset managers, BlackRock, Vanguard and States Street Global Advisers, were among the recent 14 new signatories, which also included Alquity, Coutts Asset Management, Russell Investments and Insight Investment.
See also: – Asset managers’ Net Zero Framework outlined in ‘blueprint for action’
Stephanie Pfeifer, CEO of Institutional Investors Group on Climate Change, that is working with the signatories on the Net Zero Asset Managers Initiative, said: “The determination of the investment community to play its part in securing a net zero and resilient future is evident in the commitments being made through the Net Zero Asset Managers initiative. All asset managers are signing up to a rigorous commitment with clear interim target setting ensuring there is significant progress made in the short term as well as long term.”
Pensions
In the pensions space, Legal & General and Fidelity International announced net-zero targets for their workplace pensions schemes.
In December 2020, Legal & General Investment Management (LGIM) pledged to increase the proportion of assets managed under a net-zero target and as part of that plan the group has announced this month its pension schemes in the spotlight. The group announced a proposed roadmap to achieve net-zero by 2050 across all of their auto-enrolment default investment options within its workplace defined contribution (DC) business and L&G Mastertrust. The new framework targets carbon emissions intensity reduction of 50% by 2025 and 65% by 2030 in target date default and encompasses some four million DC scheme members and £53bn in assets under management.
Emma Douglas, head of defined contribution at LGIM, said the roadmap is a significant step in assuring members their retirement savings are influencing real change.
“As the UK’s largest DC provider, we are fully supportive of achieving the target of net-zero by 2050 and the roadmap we are setting out today provides further detail as to how we plan to de-carbonise our own range of auto-enrolment defaults and those of the L&G Mastertrust. As the innovations and change required to deliver net-zero materialise, we will continue to evolve our roadmap for the coming years and use our proprietary framework to monitor the progress.”
Meanwhile, Fidelity International also committed to reducing carbon emissions within FutureWise, its default investment strategy for UK-based pension schemes, to half by 2030, and to becoming net zero by 2050 or before.
The group said these targets will align the strategy’s underlying investments with Fidelity’s commitment to support the goal of net zero greenhouse gas emissions by 2050 or sooner as part of the Net Zero Asset Managers Initiative.
Keith Metters, head of global workplace investing at Fidelity International, commented: “With more than 23 million people in the UK enrolled within DC pension schemes, it’s imperative that the industry provides solutions to allow plan sponsors, trustees and members to make a positive impact with retirement savings. Almost two-thirds (61%) of our members believe workplace pension schemes should automatically incorporate sustainability within their default investment strategy, and today’s announcement marks our latest step towards this.”
To achieve this, Fidelity will work closely with its investment partners to agree targets within the assets to achieve net-zero emissions by 2050 or earlier.
Wealth managers
Looking at the discretionary investment management space, Mercer has committed to a target of net-zero absolute carbon emissions by 2050 for UK, European and Asian clients. This means portfolios with $43.7bn are targeting net-zero absolute carbon emissions, aligning portfolios with 1.5 degree Celsius limit on global temperature increases and the Paris Agreement’s ambitions.
To achieve this, Mercer will work closely with its appointed investment managers to identify and manage a staged emissions reduction plan, oversee portfolio allocations to climate solutions, and steward an increase in transition capacity across the funds. The group’s proprietary Analytics for Climate Transition (ACT) tool will identify portfolio companies that are high carbon and low transition through to low or zero carbon and high transition.
Kate Brett, UK head of responsible investment at mercer, added: “As leaders in sustainability across research, advice and solutions, we are excited to be taking such a significant step in Europe and AMEA as part of our global roadmap to supporting clients to achieve net zero.”
Meanwhile, Willis Tower Watson Investments is aiming to reduce greenhouse gas emissions to net zero by 2050 at the latest, with at least a 50% reduction by 2030, in its discretionary delegated investment portfolios.
Craig Baker, the firm’s global CIO, said this is in response to the financial goals set by clients who realise climate change has the potential to impact returns across multiple asset classes.
He also noted that stewarding the transition to net zero can be difficult to measure and as a result the group is investing in resources.
“There is no single definitive metric that can be used to adequately measure progress and the data and analytics in the climate space are rapidly evolving,” Baker said.
“We are therefore investing heavily in leading analytics in this space, including our proprietary Carbon Journey Plan methodology, the ‘impact measurement framework’ that we have developed together with other industry participants via the Thinking Ahead Institute, our acquisition of Acclimatise in December 2020, and the arrival of the energy finance team from the Climate Policy Initiative in January 2021.
“We will also continue to work with our advisory clients to set out and deliver on their own climate-related goals via Carbon Journey Plans, including analytics on how climate change might impact liabilities as well as assets.”
This means Alliance Trust, the UK investment trust where Willis Tower Watson is investment manager, is also targeting net-zero greenhouse gas emissions by 2050 and aiming to reduce emissions over the medium term on a pathway that is consistent with the goals of the Paris Agreement and the principles of the Institutional Investors Group on Climate Change Net Zero Investing Framework.
The team will encourage its stock pickers to engage actively with investee companies on their own plans to reduce their emissions, employ EOS at Federated Hermes as an engagement specialist, and monitor the carbon intensity of the trust’s portfolio against recognised benchmarks and other metrics.
Baker added: “Being strategically ahead of a net-zero transition will, in our opinion, significantly improve risk-adjusted returns. This will come from two sources – better market returns due to more effective stewardship and outperformance opportunities as the mispricing of climate issues is resolved.”
Finally, investment consultant Redington, which advisers on over £500bn in assets, also announced the all default client advice will be aligned with the goal to reach net zero carbon emissions by 2050 at the latest. It is estimated most clients will achieve a 50% reduction in carbon emissions by 2030.
In order to achieve this, it has outlined a seven-point climate action plan including objective setting, seeking climate solutions, stewardship and default client advice.
CEO of Redington Mitesh Sheth said: “Addressing the threat of climate change is no mean feat – and whilst we are working to reduce and offset our own emissions, we know that having a meaningful impact will require a lot more than this. Offering standalone sustainability services is also not enough, which is why we have taken this next step and committed to integrating sustainability across our entire business.”
