Asset owners urged to prepare for legislated net-zero goals

Asset owners should get started on net-zero targets quickly, as aligning with the Paris Agreement may not be optional forever, according to Robeco climate strategist, Lucian Peppelenbos.

Speaking at the Pensions and Lifetime Savings Association (PLSA) ESG Conference 2021, he commented: “What is now a voluntary commitment to net zero may be embedded in legislation in a few years, or in the frameworks of financial supervisors. We need to get started now and build our capacities to align our portfolios.”

He also recommended that asset managers get to grips with the various available frameworks, such as the Net Zero Implementation Guide from The Institutional Investors Group on Climate Change and the Net Zero Asset Owners Alliance’s 2025 Target Setting Protocol.

Peppelenbos said: “The essence of what these guidelines try to answer is ‘how do we align portfolios and reduce carbon footprints of portfolios while achieving real world emission reductions’? The essence is trying to balance two elements in one strategy. On the one hand setting carbon reduction targets that are consistent with scientific scenarios.

“Ideally this is not an input to the investment process but an outcome. By this, I mean that ideally investors are exposed to assets that they know will decarbonise over time and therefore reduce the footprint of a portfolio. The second component is analysing and understanding investments in a forward-looking way.”

He argued that investors needed to be aware of companies that they were invested in and have the capability to analyse their transition readiness.

To achieve this, Peppelenbos explained he had looked at specific companies and, depending on their sector and specific line of business, worked out what strategies they would need to employ to be on target to reach net zero, such as targets and current carbon performance, before comparing this over-arching strategy with what the company was actually implementing.

He added that the same logic could be employed when examining countries.

Peppelenbos continued: “We also use this information for active ownership. Those companies or countries that are not committed or insufficiently committed to aligning would be the focus for escalation in voting and engagement, so we can help them accelerate and also contribute to achieving a net zero economy.”

He concluded: “There are multiple routes to Paris – there is not a blueprint or a single way – and there are many methodological and modelling choices to be made. You must be clear about choices and assumptions. Get started now. We know this is the direction that the world is taking, we know the future is low carbon. Its not going to be an easy ride but it is clearly the direction.”

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