Willis Towers Watson has committed its delegated investment portfolios to net zero by 2050, with at least a 50% reduction by 2030.
The firm - which has $166bn in assets under management across its delegated investment business - will integrate climate risk into its multi-asset investment process and offer a range of multi-manager funds where sustainable investment is a key part of the investment proposition.
The consultant said it believes the transition to net zero should be achieved by a combination of decarbonisation of existing investments and new investment in long-term climate solutions, using multiple ‘levers' including changes to risk management and asset allocation, manager selection, index design, stewardship, and policy level engagement.
It said engagement is likely to be more effective in decarbonising the system than exclusions alone, but recognises that exclusions may be necessary at times where engagement cannot solve the problem.
Global chief investment officer Craig Baker said: "Climate change, and a just transition to net zero greenhouse gas emissions, is a systemic and urgent global challenge. We believe that working to achieve net zero by 2050 in our discretionary portfolios is completely consistent with the financial goals we have been given by our clients as climate change has the potential to impact returns across multiple asset classes.
"We have already embedded this in our investment process and ultimately in the portfolios we are managing and stewarding.
"Being strategically ahead of a net-zero transition will, in our opinion, significantly improve risk-adjusted returns for our clients. This will come from two sources - ‘better beta' due to more effective stewardship and ‘alpha' as the mispricing of climate issues is resolved."
He continued: "We think that understanding this transition will be one of the biggest sources of alpha across all asset classes and that this alpha opportunity is likely to be greatest in the next few years. We will therefore target pathways to net zero that seek out pricing opportunities while delivering a reduction in emissions of more than 50% between 2015 and 2030, consistent with the goals of the Paris Agreement.
"Measurement of our progress and that of the whole investment industry in stewarding the transition to a net zero and climate-resilient economy is an important issue. There is no single definitive metric that can be used to adequately measure progress and the data and analytics in the climate space are rapidly evolving.
"We will also continue to work with our advisory clients to set out and deliver on their own climate-related goals via carbon journey plans, including analytics on how climate change might impact liabilities as well as assets."
Willis Towers Watson is the latest in a string of providers and asset managers to set net-zero targets, including Robeco and Phoenix, both aiming for 2050 for their investment portfolios. Aviva has set a 2040 net-zero carbon target and Aegon also committed to net-zero default funds by 2050.
