Partner Insight: Setting net-zero targets for a credit portfolio

Columbia Threadneedle Investments worked with a client to forecast the carbon footprint of its holdings. This case study reveals how

Gareth Jones
clock • 1 min read
Partner Insight: Setting net-zero targets for a credit portfolio

Larger pension schemes are making commitments to reduce the carbon emissions attributable to their investment portfolios to net-zero by 2050.

One example they might be able to learn from is that of a major European tier one insurer, which is signatory to the Net-Zero Asset Owners Alliance and which worked with Columbia Threadneedle to set interim net-zero targets for its portfolio.

A carbon forecast analysis found that the carbon footprint of some specific investment grade portfolios could fall, according to a mean estimate, by around 40% to 50% in the medium term and without making any changes. Then, the team showed the client how active positioning could supplement and accelerate that natural progression.

The combination of scenario analysis and active bottom-up positioning gave the insurer confidence to set targets, and in March 2021, they announced an interim 25% reduction target of carbon by 2025 for their investment-grade credit portfolio.

Tammie Tang, credit portfolio manager for institutional clients at Columbia Threadneedle, says this approach can help other asset owners make their own interim net-zero targets. 

"As active managers of high-grade credit, Columbia Threadneedle can help clients improve their understanding and conviction towards net-zero targets, based on the analysis of the natural decline and the analysis of active bottom-up positioning," she says.

"If we do this sensibly, potentially there may also be opportunity to enhance return given an absence of carbon premium for some higher emitting, slower trajectory issuers."

For more on forecasting the carbon footprint of your fixed income portfolio, click here to access your exclusive Focus guide to debt based on environmental, social and governance principles

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