We believe that targeting sustainable outcomes improves our clients’ long-term returns and delivers real world impact. Tackling climate change is a key strategic priority for us. As signatories to the Net Zero Asset Managers initiative, we are proactively developing solutions and working with our clients to enable them to achieve their net zero goals.
Our approach is focused on enabling net zero-directed investing across all asset classes and we’re taking the following action:
- Portfolio decarbonisation. We are committed to reducing the carbon intensity of our portfolios. On Finance Day at COP26, we announced our target to reduce the carbon intensity of our assets by 50% by 2030 against a 2019 baseline. We aim to achieve this with a focus on real world decarbonisation by investing in transition leaders and climate solutions that will help drive the transition to net zero. We already systematically analyse climate risks in our portfolios – and as a result, the majority of our funds are already less carbon intensive than their benchmarks. We are working on a detailed target setting paper which will be published in 2022 along with a helpful FAQ document on how we’ll meet these targets.
- Aligning the assets we manage with net zero goals: Approximately 25% of the assets we have under management (as at 31 December 2020) are aligned with the Paris Agreement’s net zero 2050 goal. We aim to increase this by proactively working with current and prospective clients and will provide annual updates. For our direct Real Estate, for example, we published our net zero framework in January 2021, and are developing detailed fund-level net zero 2050 pathways which we will publish in 2021.
- Active ownership: We are already influencing climate action via stewardship across all asset classes and have committed to step up our actions. For example, we will engage with the highest carbon-emitting assets across our holdings through a focused priority watchlist, time-bound milestones and expected outcomes. In our actively held equities, we will also reflect our views in our voting activities. This includes actively voting against companies who are rated at the lowest levels for transition management quality (with a score of 0 or 1) by the Transition Pathway Initiative (TPI).
- Investing in climate solutions: We are committed to proactively investing in climate solutions and companies who are leading the transition to net zero. That means increasing our exposure to holdings with credible, robust decarbonisation targets, as well as green revenues that align with the EU taxonomy for environmentally sustainable economic activities.
- Investment restrictions: We put investment restrictions in place for a wide range of our funds, for example in relation to fossil fuels and coal. We are members of the Powering Past Coal Alliance (PPCA) and expect companies to have credible coal power generation phase out plans in place. In 2021, we will publish a clear coal policy, provide transparency on our coal exposure and develop a coal engagement plan. We aim to restrict investments in companies that do not make sufficient progress on reducing their exposure to coal.
- Thought-leading research and tools: Integrating climate change into our investment decisions is supported by rigorous climate change research, data and tools, such as our market-leading work on climate scenario analysis. We aim to be at the forefront of developing best practice methods for net zero directed investing, including robust scenario analysis, target setting, measuring transition and portfolio alignment.
- Collaboration and advocacy: To enable capital allocation in line with a net zero pathway across all our investments, more ambitious and effective global policies are needed urgently. We are actively involved in a number of collaborative climate industry initiatives to help shape the development of best practice, and to advocate for stronger policies. For example, we are signatories to the IIGCC Global Investor Statement on Climate Change to Governments. We will use our influence as large investors to urge policy makers to step up climate action and put effective mechanisms in place to put pledges into practice.
- Transparency: We are strong supporters of the TCFD recommendations to provide transparent climate disclosure, and we published our first TCFD report in 2020 (the next report is due to be published in June 2021). We will report on progress against our commitments on an annual basis via our TCFD and client reports, including decarbonisation progress and investment in climate solutions. Our in-depth ESG client reports provide greater transparency for our clients to better understand the ESG impacts of their portfolios. We aim to review our targets on an annual basis and be more ambitious in line with evolving client goals and global policies.