Make a real contribution to Net Zero with ‘Transition Leaders’

Economies, companies and investors around the world are joining the United Nations’ Race to Zero and commit to the net zero goals for 2050. It is estimated that by 2050 US$ one to two trillion will be invested every year to meet the targets.¹ Investors play a vital role in accomplishing this because of their capital allocation and commitment.

Climate change according to Eva Cairns, Senior ESG Investment Analyst – Aberdeen Standard Investments Emphasizes that it is accordingly also of critical importance that the recurring promise of avoiding carbon emissions is also reflected in political strategies and measures that protect investors and invest capital over the long term in the interests of decarbonisation. provide the right incentives to do so. “But unfortunately we are still a long way from achieving the net zero target for 2050. The latest UN emissions gap report shows that even if all current net-zero commitments are implemented, we will be at 2°C. Will not be able to keep warming down,” Cairns said.² Scottish Asset Manager is one of the 128 signatories to the Net Zero Asset Managers Initiative and has made these goals a central factor in portfolio management.

Achieving net zero in a portfolio is not synonymous with contributing to decarbonisation in the real world, stresses Cairns. “But in the real world decarbonization is important in the end.” Experts at Aberdeen Standard Investments explain that you can easily decarbonize a portfolio by reducing or eliminating exposure to companies in carbon-intensive sectors such as steel, cement and power generation. In this situation the temperature alignment score of the portfolio would look really great. But in 2050 these sectors will still be needed and, according to Cairns, they will need investor capital to innovate, decarbonize and transform your production so that they can play an important role in decarbonizing economies. “Therefore, we think investing in companies with ambitious and credible decarbonization goals has a far greater impact on achieving net zero in the real world than disinvestment.” This is also the main message of IIGCC Net Zero Investment Framework,³ Aberdeen Standard Investments was closely involved.

Based on this, Aberdeen Standard Investments is currently developing frameworks and solutions for clients with net zero ambition. For example, the company’s largest client Phoenix Group has set itself a net zero target for its investment portfolio by 2050. An important step for an asset manager is to invest in “transition leaders,” in other words companies that are leading the way in energy transitions. “We’re not just looking at the carbon footprint, we’re looking ahead and investigating credible transition strategies,” Cairns explains. In concrete terms, this means combining the results of their own climate scenario analysis with an evaluation of company goals and fundamental research to determine companies’ decarbonization potential and related strategies. The fixed income team relies on a combination of analyst expertise, internal data from analysis of climate scenarios and external data from sources such as CDP (Carbon Disclosure Project), Transition Pathway Initiative (TPI) or MSCI, and uses this to build tools. Evaluation of portfolio and benchmarks with respect to net zero targets. It plans to work with real estate clients to align its portfolio with net zero emissions by 2050, and is exploring what it means to reduce carbon emissions in private markets. And also include net zero targets in strategic asset allocation to take into account climate change as another dimension in risk-return adaptation.

“We are proud to be part of the Net Zero Asset Managers Initiative and will continue to promote best practices in net zero investing in collaboration with our competitors and clients, for example through our long-term support of the IIGCC Paris Allied Investment Initiative, ” said. Cairns has also intensified efforts to tackle climate change in relation to its own company and aims to reduce operational Scope 1, Scope 2 and Scope 3 emissions by 50 percent by 2025 (based on 2018 values) by 2050. to achieve the goal of net zero emissions. .

[1] Energy Transition Commission: Making the Mission Possible, September 2020

[2] UN Emissions Gap Report 2020, accessed 19 March 2021: https://www.unep.org/emissions-gap-report-2020

[3] IIGCC Net Zero Investment Framework, March 2021

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