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 Lauren Compere, head of stewardship and engagement at Boston Common, talks about exiting direct fossil fuel companies and setting net-zero targets for the firm itself.
What type of barriers are there to creating net-zero targets?
The ongoing development of carbon methodologies and Scope 3 disclosure by companies are in nascent stages so we must rely on estimated data to assess progress, but we are encouraged by the number of companies (more than 3,500) setting science-based targets, broadening disclosure of Scope 1 and 2 emissions, and the global focus on climate finance regulations, which notably includes the US with the SEC’s recent consultation and rule-making process to mandate climate disclosure.
What benefits are there to being a NZAM signatory?
One reason we joined NZAM was because of the guidance from key organisers on the technical aspects of setting net-zero targets for asset managers and the peer learning opportunities created through the regional groups, for example the North American signatories group organised by Ceres.
Can you explain why you chose to use portfolio coverage targets only, rather than have portfolio decarbonisation in the mix? What are the benefits?
Our firm level assessment across our global equity portfolios found that our assets in scope were aligned with a 1.6°C scenario, so adopting a portfolio coverage target made sense as we are seeking 1.5°C alignment in line with our NZAM commitment.
When managing portfolio targets, a Science-Based Target initiative (SBTi) portfolio target is best. Some 67% of our AUM covered in our baseline assessment already had a climate commitment target so we developed a three-year engagement programme to move this to 90% by 2025.
In 2021, we launched a pilot engagement with 10 of our highest greenhouse gas (GHG) emitters (by emissions exposure) for select strategies and we adopted this model to engage our 10 highest relative GHG emitters this year. We have also begun a data gathering engagement with around 50 companies that do not have any climate targets or commitments.
Have you used any third-party support to set your targets or meet them?
Boston Common has assessed and disclosed its portfolio carbon footprints since 2015, using third parties including MSCI and ISS for its carbon analytics to inform our approach.
What has been the biggest challenge in decarbonising your portfolio?
At the end of 2019, Boston Common made the decision to exit direct fossil fuel exposure in our portfolios. As a result, our relative highest GHG emitters might be an eclectic mix of companies such as Steel Dynamics, which has one of the most efficient steel manufacturing processes; Xinyi Solar, a solar company that supports the renewable energy transition, and TDK a company with high GHG operational emissions but products enabling the low carbon transition.
Is it fair to say you have committed all AUM to net zero apart from fixed income? Could you say more about this and if you plan to include it in the future?
We primarily manage global equity strategies, so our highest priority was our equity strategies including equity exposure in balanced accounts. We are looking at how carbon accounting for fixed income is developing and will consider expanding our scope to fixed income in due course. Also, excluded in our NZAM commitment is subadvised small cap product with ESG/sustainability indicators.
What have you found that works well/doesn’t work when engaging companies to adopt science-based targets or equivalent?
Engaging on the same set of asks across regions is a challenge, particularly if companies have yet to adopt specific climate targets or commitments.
About half the companies without climate targets or commitments are found in emerging markets (EMs) so we are often engaging with EM companies at the beginning of their net-zero journeys. For example, these companies may just be starting to develop a formal GHG inventory, which can take up to a year to complete.
How do you think NZAM and other net-zero initiatives could be improved to speed up decarbonisation of investments?
Perhaps the biggest challenge to speeding up decarbonisation of investments is enabling the companies we invest in to access the resources/tools to adopt climate commitments.
Another challenge is the backlash we have seen in the US that threatens to sideline efforts mandating climate disclosure by companies.
Could you say a little about building net zero into the culture of the firm?
As a firm, we hold ourselves accountable to the same standards we ask of companies. The ESG team under the leadership of me and Leah Turino, head of ESG integration, led the project to join NZAM, conducted the assessment, and set the NZAM target and senior leadership including the CEO, CIO, the board of directors, and portfolio managers were involved in the consultation and ultimate approval of the NZAM commitment and plans.
|When did you sign up to the NZAMI?||March 2021|
|AUM committed to net zero ($)||5.6bn (as at 31/12/2021)|
|% AUM committed to net zero||93|
|Timeframe||2025: Engage the 31% of holdings with no/insufficient target to move to an SBTi target or equivalent. Raise % of firm level holdings with climate target from 67% to 90%.|