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Major investment houses join the march toward net-zero goals

29 March 2021 Amena Saiyid

Some of the world's leading money managers are joining an international effort to limit investments to projects and companies aiming for net-zero carbon footprints ahead of the COP26 global climate change meeting in Glasgow, Scotland, in November.

BlackRock and Vanguard Group are among 43 additional companies with investments totaling $22.8 trillion that have signed onto the tenets of the "Net Zero Asset Managers Initiative," a program set up for institutional investors in December 2020 to support net-zero emissions goals through all its holdings by 2050 or sooner.

With these additions, the initiative announced it now has 73 signatories that represent $32 trillion of assets under management, or 36% of such assets globally.

Companies increasingly are facing physical risks from the harmful effects of climate change in the form of the direct economic costs of repairing facilities damaged by rising waters, hurricanes, and wildfires, and indirect impacts such as increased insurance premiums. They also are facing transitional risks such as changing clean energy technology, changes in climate policies, and related litigation, among others.

Under pressure from governments and investors, numerous major asset management companies including Canada-based Brookfield Asset Management and BlackRock have said that they are incorporating climate risk into their decisions, whether that means increasing investments in clean technology and related industries or pulling out of some types of fossil fuel-related investments.

'Historic investment opportunity'

At the start of the year, BlackRock CEO Larry Fink reminded company CEOs that "climate risk is investment risk," but the transition to net zero also presents a "historic investment opportunity." The investment firm since then has been taking steps to shift its investments toward companies that are engaged in decarbonizing their operations and taking steps to mitigate climate risk.

Likewise, Brookfield announced in February it is seeking to raise $7.5 billion for a Global Transition Fund that will be directed toward catalyzing decarbonization of companies and assets.

In its 2021 Investment Stewardship Report, Vanguard wrote climate risk oversight, management, and disclosure "now constitute a core governance expectation for affected companies."

The company in that same report noted that it recommended against a shareholder proposal on climate at Cheniere Energy because it would have hindered business. However, Vanguard did support climate disclosure proposals at Duke Energy and Aena, a Spanish airports operator.

"Climate change represents a long-term, material risk to our investors' portfolios," Vanguard CEO Tim Buckley said on 29 March. "As a steward of our clients' assets, we recognize the crucial role we and others play in driving real progress on climate risk over time."

Show 'real world progress'

To show "real world progress" ahead of 2050, the swelling group of investors have agreed to draw up climate action plans replete with 2030 targets for a proportion of their assets in line with their net-zero goals. They also have agreed to report annual progress on climate action plans in line with the voluntary Task Force for Climate-Related Financial Disclosures (TFCD).

Ceres, Asia Investor Group on Climate Change, CDP, Investor Group on Climate Change, Institutional Investors Group on Climate Change, and Principles for Responsible Investment founded the Net Zero Asset Managers Initiative that is now accredited by the United Nations Environment Programme Finance Initiative.

"This is not just about shifting portfolios. It is about taking advantage of the biggest investment opportunities of our time," Ceres CEO Mindy Lubber said in a statement.

This does not mean these investors will stop investing in projects with a large carbon footprint, but it means they will be accountable for where they invest their funds.

"Engagement with companies is going to rapidly shift to 'How are we going to implement a net-zero commitment?' from 'Can you help me with TCFD reporting?'" Christine Chow, IHS Markit's global head of strategic governance and ESG integration, said, adding: "Both companies and investors will need credible data and analytics insights to provide evidence of progress."

Posted 29 March 2021 by Amena Saiyid, Senior Climate & Energy Research Analyst, IHS Markit

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