How investors can push pledges into action

Martin Currie's Sheasby and Gilmore say directing capital, active engagement and influencing best practice will help support net-zero ambitions

A key area of impact for investors to actively contribute to net zero is through the creation of incentives for companies to adopt credible net-zero targets. This can be through supporting those companies that have proactively created credible transition plans as well as by helping companies adopt best practice in moving to specific, scientific and timebound net-zero targets.

There is a real challenge currently in the sizeable disconnect between ambition and action on net zero. A recent study from sustainability consultants South Pole found that although net-zero commitments had doubled over the past year, just 11% of organisations have set a scientific-based target in support of these.

There needs to be a sense of urgency in translating high-level commitments into more specific targets. A key part of how investors can do this is through active engagement around the adoption, measurement and tracking of key climate-related pledges, and by voting for these ambitions, such as supporting proposals that increase transparency.

The investment management industry is a global force, which – through its actions as long-term stewards of its clients’ assets – is on a journey to support delivery of the Paris Agreement goals. That said, studies such as those by Influence Map have shown that the industry’s policy actions remain limited at present and as such we should continue to lobby for and support strong policy actions in relation to climate finance.

Plan of action

The EU Action Plan on Sustainable Finance is a good example of the increasing ambition and scope of policy – something investors can be supportive of and engaged with in terms of continuing to advance the policy debate.

Another way investors can help back the achievement of climate targets is to institutionalise and help support the adoption of key tools and frameworks around climate change as they relate to corporates. These frameworks have the dual benefit of providing industry-specific structures for managing climate risks and providing greater insight to investors to aid more effective market pricing of climate-related risks and opportunities. They also aid corporates by providing structured tools to help them with the management of their own climate-related goals.

As adoption of these frameworks expands to a greater number of companies and investors, the utility for all involved increases, creating a positive feedback loop around more, higher-quality climate-related data to compare performance within industries and to help facilitate accelerated use of best practice across industries.

Initiatives such as the Task Force on Climate-related Financial Disclosures have validated the necessity and momentum behind the rise of ‘decision-useful information’ frameworks. These have been developed to be industry specific, quantitative in nature, comparable and relevant to the companies concerned and cover disclosure on the governance, strategy, risk management and metrics & targets associated with climate change for a given business.

Critical mass in adopting key frameworks helps companies by simplifying their reporting demands from investors and the outside world – and they can do it with greater precision and relevance.

Elsewhere in the industry, there is also fast emerging support for initiatives such as the Paris Aligned Investment Initiative and the Asset Manager Net Zero Alliance in promoting widespread investment industry adoption of net-zero targets, which will increasingly form part of an industry response in creating transparency.

There are a number of ways in which investors and asset managers can support society’s net-zero ambitions. Specifically, by directing capital to reward solutions to the climate crisis, by using active engagement to encourage emissions reductions targets and by influencing the adoption of best practice. There will be compelling investment opportunities for those investing with a long-term sustainability perspective as the rate of change continues to accelerate in the fight against climate change.

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Natasha Turner

Natasha was global editor at ESG Clarity, part of Mark Allen Financial, and a financial journalist for seven years. She has been shortlisted for Story of the Year and Investment Journalist of the Year...