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Many ways leading to Net Zero

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on 2022-06-12

273 asset management companies committed to supporting the goal of net zero greenhouse gas emissions by 2050 or sooner, in line with global efforts to limit warming to 1,5°C. 43 asset managers disclosed their targets and approaches in May 2022 - others are still working on their plans.

The commitment is designed to be ‘methodology neutral’ and asset managers may choose the most appropriate target methodology for their business. The network partners, through the Investor Agenda, recognise and endorse three target setting approaches:

Paris Aligned Investment Initiative’s Net Zero Investment Framework (NZIF)

Science Based Targets initiative for Financial Institutions (SBTi)

Net Zero Asset Owner Alliance Target Setting Protocol (TSP)

To ensure targets are robust and science-based, asset managers should choose one or a combination of the above methodologies. If asset managers wish to use an alternative methodology, they should explain the rationale in their disclosure and reporting, including how their alternative methodology is in line with best available science on achieving the 1.5°C goal of the Paris Agreement.

Within a year of becoming a signatory, asset managers are required to disclose:

The initial percentage of their portfolio that will be managed in line with net zero

Their ‘fair-share’ interim targets for AUM that will be managed in line with net zero, and target date

The methodology used in target setting

In May 2022 43 asset managers out of a total of 273 signatory companies provided information in the first Target Disclosure Report was published. A number of asset managers improved their information compared to the first report in November 2021.

All disclosing signatories provide information on the interim targets that have been set in relation to the proportion of assets managed in line with net zero, including the science-based scenarios used to determine these targets. The overwhelming majority have used one, or a combination, of three endorsed target setting methodologies:

Paris Aligned Investment Initiative’s Net Zero Investment Framework (NZIF) – 18 signatories

Science Based Targets initiative for Financial Institutions (SBTi) – 14

Net Zero Asset Owner Alliance Target Setting Protocol (TSP) – 4

Combination – 4

Own/other methodology – 3

As mentioned in the report, for many asset managers a key constraint identified is the absence of methodologies for accounting for specific asset classes or measuring alignment to net zero. Several managers noted that this was the case for derivatives, private equity, green bonds, sovereign bonds, covered bonds, structured products and cash, among others. There are a number of efforts in train, supported by the network partners and individual managers, to address these gaps in methodologies, which will allow a broader range of asset classes to be included in future.

Similarly, data quality and availability continue to be challenges. Many have noted that they only have included strategies, funds and geographies where data quality and availability was sufficient to underpin robust science-based target setting. However, they are continuing to make efforts to gather relevant data to enable setting of additional targets or broadening the scope of current targets going forward.

More information on the Report

All opinions expressed are those of the author. investESG.eu is an independent and neutral platform dedicated to generating debate around ESG investing topics.

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