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, Andy Howard, global head of sustainable investment at Schroders, which invests in natural capital, renewables infrastructure and impact, talks about the key role engagement plays in the firm’s decarbonisation strategy and how it approaches Scope 3 emissions.
How do you ensure your portfolio aligns with the 1.5 degrees warming target by 2040?
Our transition strategy focuses on engagement with portfolio companies to drive sustainable change. Over the past five years, we have seen that companies able to reduce emissions more quickly than peers have outperformed, and expect the underlying drivers of that performance to continue.
Every year, we focus on the 600 to 700 companies that contribute the most to our financed emissions, encouraging them to establish transition commitments and plans. We also monitor the progress made by companies that have made those commitments to make sure they are on track to meet the targets they have set.
To date, the approach has proven successful, with companies we have engaged since 2021 almost twice as likely to establish targets as those we did not engage.
How do you approach Scope 3 emissions as part of their decarbonisation strategy?
The emissions from the investments (Category 15) we make on behalf of our clients dominates our group’s carbon inventory.
To tackle this challenge head-on, we have developed our Climate Transition Action Plan that outlines our strategy for transitioning our business and the portfolios we manage. We are not just looking at the risks and opportunities of the transition, we are actively planning for them. We comprehensively update our progress toward those goals annually to hold ourselves accountable.
What has been the biggest challenge since setting out on your decarbonisation journey?
We are comfortable that the progress we have made to date leaves us on track to meet the long-term goals and roadmap we have laid out. But make no mistake – this is just the beginning of a long and challenging road.
We have to recognise that this is a nascent field and that data and disclosure from the companies and assets we invest in can be incomplete and inconsistent. This makes it difficult to measure our performance over short timeframes.
We are convinced that a climate transition can be approached to enhance rather than constrain our ability to manage risks and deliver performance for our clients. That is why we have focused firmly on active ownership as a means of supporting the transition, rather than simply excluding certain activities or formulaically limiting portfolio carbon exposures.
Asset managers are likely to attract criticism from different quarters, for doing too much or for not doing enough, and ensuring we have a clear view of the goals we have set, the investment strategies we are implementing and ensuring we continue to make progress is critical. We know that change will not come overnight, but we are committed to the journey.
Schroders’ net zero goals
|When did you sign up to the NZAMI?||December 2020 (founder member)|
|AUM committed to net zero (£)||Approx. 322.66bn, including listed equity, corporate bond, REIT and ETF holdings (as of December 2022).|
|% AUM committed to net zero||100%, with 61% validated by the Science Based Targets Initiative (SBTi) thus far.|
|Timeframe||In 2021, we committed to the SBTi, including alignment toward to a 1.5°C pathway by 2040 for all our managed assets, with an interim target of 2.2°C by 2030. |
In 2022, Schroders became one of the first 20 financial institutions to have its goals formally validated by the initiative.