ESG Clarity is exploring the decarbonisation targets set by Net Zero Asset Managers’ initiative (NZAM) firms as well as talking to individual fund groups about how they are finding the journey to net zero.
See also: – ESG Clarity’s Net Zero Database
Here Carlota Garcia-Manas, head of engagement at Royal London Asset Management (RLAM), talks about the need for more alliances, collaborative engagement and the difference in data across jurisdictions.
How have you found the process of creating net-zero targets?
Based on regular conversations with other NZAM participants it became very apparent that our experience of creating net-zero targets was similar to a large number of other financial institutions.
The main challenges we are facing are due to the lack of quality data availability, consistency of climate modelling and uncertain policy context, as well as economic growth that is still coupled with emissions, so the more the economy grows the more we emit.
As asset managers we must balance an approach to net zero based on clients’ clear signals. We are expecting and looking forward to the development of more asset class methodologies that will mean we can set baselines and targets for classes such as derivatives.
What has been the biggest challenge in decarbonising your portfolio?
One of the biggest challenges remains availability of data for particular jurisdictions and types of issuers – for example, in private markets and smaller caps – and also consistency. Bar that, the intention of the Glasgow Financial Alliance for Net Zero to focus not only on portfolio decarbonisation but real economy decarbonisation makes tracing and tracking progress more ambitious and difficult to attribute objectives. This is because it is complex to attribute real-economy impact to investors’ actions beyond their portfolio immediate metrics.
The focus of our climate plan on a just transition makes every engagement we have more challenging and detailed because we take into consideration a reduction of climate impact while addressing the social collateral risks and opportunities.
You’re aiming for a 50% reduction in carbon intensity, will you be trying to take that & any higher?
Aligned to our membership of the NZAM initiative we set an interim target for 2030. This is consistent with a fair share of the 50% global reduction of emissions identified by the IPCC special report. Some sectors and jurisdictions will be able to go faster than others, and pace dependent on government and policy interventions to provide the right framework of regulations and guidance.
Can you share any best practice around engaging companies to adopt science-based targets and transition plans?
We refreshed our net-zero engagement plan in 2022. Best practice involves understanding the sectors where each company operates and the business model changes required in order to meet credible transition plans. It also includes collaborative engagement when that is likely to deliver faster and more impactful outcomes for example, due to jurisdictional or holding size challenges, and use of our proxy voting as an escalation technique.
Have you encountered challenges with including Scope 3 emissions in your net-zero targets? If so, what are they and how have you approached them? If not, any tips for other AMs struggling with this?
We calculate our financed emissions by aggregating Scope 1 and 2 of our holdings. That way, we avoid double-counting the Scope 3 emissions of one company that may represent the Scope 1 and/or 2 of another holding. We find Scope 3 are best assessed at the security or issuer level. When we engage with companies we use all of the scopes of companies’ emissions to prioritise which companies we engage with. For example, we will approach higher emitters first.
How do you think NZAM and other net-zero initiatives could be improved to speed up decarbonisation of investments?
Net-zero initiatives could be improved by further coalescing around a clear message for policymakers, technology developers, and also by creating more alliances that are compatible with all regulatory requirements. There must also be a focus on tackling barriers to scaling available solutions. For examples, by de-risking investment or by increasing opportunities for public and private investors to invest in early-stage technologies or others, such as infrastructure, that require long-term financial commitments.
Could you say a little about building net zero into the culture of the firm?
We are a purpose-driven business committed to playing our part in tackling climate change. Building on our net-zero commitment, the next step is to develop a climate transition plan. The plan will reflect the best contemporaneous guidelines that are in line with regulatory requirements and will help us build a strategy that aligns with our purpose that will spread throughout the whole firm, from governance, through to capacity building.
RLAM’s net-zero goals
| When did you sign up to the NZAMI? | March 2021 |
| AUM committed to net zero ($) | 146000m |
| % AUM committed to net zero | 71 |
| Timeframe | Net-zero operational emissions and 50% carbon emissions reduction in portfolios by 2030, and net zero across portfolios by 2050 |
View all analysis from ESG Clarity’s Net Zero Database here.
