The sixth Intergovernmental Panel on Climate Change (IPCC) report published in August provided an update on the latest scientific data regarding climate change, and was described as a "code red for humanity", indicating that we have reached a critical point at which urgent reductions in absolute greenhouse-gas emissions are needed to avoid potentially devastating consequences for the health of the planet.
In March 2021, Newton Investment Management Ltd joined the Net Zero Asset Managers initiative, which comprises a group of 128 asset managers who are committed to supporting the goal of net-zero greenhouse-gas emissions by 2050 or sooner.
Development of common standards
We have taken part in the Institutional Investors Group on Climate Change (IIGCC) target-setting groups to ensure that the guidance standards are robust and practical to implement, and have participated in consultations on target setting. We have also conducted meetings with organisations that determine and audit science-based targets, which has assisted us in building our understanding of what the broader industry is doing.
Development of principles that underpin our approach
Adapt and evolve: Our approach will seek to incorporate a holistic set of actions with accompanying relevant and robust measures and targets. These will need to adapt over time as science, policy responses and management approaches progress.
Real-world change: We will seek to manage for better climate outcomes, even if individual climate measures appear worse in the short term. For instance, investing in and engaging with a heavily emitting utility and encouraging it to adopt a decarbonisation strategy could be more beneficial for the climate than exiting sectors that will continue to play a central part in meeting the energy needs of society.
Paris-aligned portfolios: We are committed to evolving existing portfolios, and developing new strategies, to manage the long-term risks and opportunities associated with the transition to a low-carbon world. Identifying the winners of this transition will require deep fundamental research to better understand the influence of this transition on business and economic models.
Climate opportunities: While it is important to manage the risk of stranded physical assets and business models, there will also be a myriad of new investment opportunities aligned to delivering the products and services needed to enable a successful energy transition. Our longstanding thematic approach to investing is important in understanding where climate-related opportunities can be best identified.
Expressing climate-related issues: We have identified five key methods by which we can express our views or influence outcomes linked to climate change:
- Work with clients to understand and implement their strategic climate objectives
- The purchase, sale or change of weight of a security
- Collaborative or direct engagement with issuers, regulators and governments
- Voting at company meetings
- Transparent reporting and analysis of climate risks and solutions in portfolios
Target-setting approach: Our approach will involve the comparison of our portfolios against a hypothetical Paris-aligned global economy. As a first iteration, we will compare our portfolios' emissions intensity against their respective benchmarks, having applied an annualised reducing-balance percentage reduction of 7% (this percentage is sourced from an emerging consensus from industry reports).
The journey to net zero
While we are pleased with our progress thus far, we are still in the process of refining our plans. As the transition to a low-carbon world continues to gain traction, we are committed to supporting the net-zero goal by working alongside the Net Zero Asset Managers Initiative, and we will continue to adapt to the complex and evolving investment landscape.
This post was funded by Newton Investment Management
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