Portfolios must play their part in reaching climate goals

EdenTree's Patel says investors need to challenge their asset managers to report whether their portfolios are invested to meet the 1.5 degree target

Following the warning from the recent Intergovernmental Panel on Climate Change report, and with COP26 looming, there are now calls for more action, and asset managers have a key role to play. We need to see more asset managers being active participants in reaching climate targets, more aggressive targets, and more companies adopting science-based targets.

The science is constantly evolving, as is the role asset managers can play in helping tackle the climate emergency. Asset managers are well positioned as allocators of investment capital across a wide range of sectors and assets. They can play a key role by adopting an investment framework that encourages and rewards businesses that are climate-aware, leading to meaningful progress in tackling the climate emergency.

Investors need to challenge their asset managers on reporting if the portfolios in which they are invested into meet the 1.5 degree target. The challenge for asset managers is not to be bystanders, but active participants by ensuring their portfolios are also playing their part in helping to reach current and future targets set.

Emissions targets

Emissions targets across all industries need to be more aggressive, not just at the usual high-profile suspects: energy, transport and agriculture. For example, cement, the active ingredient in concrete, accounts for 7% of global carbon emissions, more than aviation and deforestation combined.

The fashion industry accounts for 20% of the wastewater globally and 93bn cubic metres of water which could serve 5mn people annually. In addition, it is responsible for 8% of carbon emissions worldwide, more than international flights and shipping combined.

A more ambitious framework needs to be established with a carrot and stick approach if we are going to meet the 1.5-degree target agreed in Paris.

Net-zero carbon, which has come to dominate the climate debate, is focused on achieving neutrality by a certain date, typically 2050. This targets carbon neutrality via carbon offsetting, usually via environmental credits to get to a net-zero target.

Net zero vs science-based targets

This has led to the criticism that there is no structural change for the emitter. Science-based targets (SBTs) align with climate science and are very much rooted in the Paris Agreement – limiting global warming to 1.5 degrees.

The number of companies that have signed up to SBTs via the Science Based Targets Initiative has moved up sharply to nearly 1700. We are looking to encourage companies to adopt a SBTs approach, as this will make a larger impact on lowering emissions, which remain the key driver of temperature change.

Ketan Patel is manager of the EdenTree Responsible & Sustainable UK Equity Fund and an ESG Clarity editorial panellist.


Natasha Turner

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