To cut through the noise of the ever-expanding number of corporates setting net zero targets, abrdn’s Sustainability Insights team has developed a proprietary credibility framework to help investors identify genuine climate transition leaders. Here, Eva Cairns, abrdn’s Head of Sustainability Insights and Climate Strategy explains the team’s ambition and methodology.

Around 90% of global GDP and emissions are covered by a net zero goal and over 3,800 companies have set a science-based target. Strategies to achieve net zero are by design ambitious. But how do we assess if they are credible and will actually be implemented? Taking a forward-looking view to identify transition leaders is critical while the risk of potential climate leaders to overpromise and underdeliver is significant. To meet this challenge, the abrdn Sustainability Insights team designed a framework to empower investors to hold corporates to account on the credibility of their climate strategies.

Focusing on real world impact

Climate change is one of abrdn’s strategic priorities and we joined the Net Zero Asset Managers initiative in March 2021. As an international asset manager, abrdn invests in and collaborates with companies of all sizes, operating across various sectors and at differing levels of financial and environmental maturity.

The challenge of delivering on our net zero commitment is to do so with real world impact and not just by quickly reducing exposure to carbon intensive companies. As will be discussed at COP28, global investors need to support the transition of carbon intensive industries such as steel, cement, and power rather than dropping them from portfolios entirely.

For real world impact, you need to be able to identify firms that move the dial, innovate, provide solutions, and have leading transition strategies. But that is easier said than done when most focus seems to be on the ambition rather than the credibility of targets.

Eva Cairns, Head of sustainability insights and climate stategy, abrdn

A framework to deliver on net zero commitments

The abrdn Sustainability Insights team, therefore, set out to build a framework to cut through the noise of the ever-expanding number of corporates setting net zero targets and to identify credible transition leaders worthy of institutional backing. The result of this project was abrdn’s proprietary credibility framework, which evaluates the following six strategic pillars to rigorously assess the credibility of corporate targets:

  • Emissions target design
  • Emissions performance
  • Green market penetration
  • Climate governance
  • Technology readiness level
  • Policy supportiveness

Drawing on contributions from experts across abrdn, the framework is underpinned by a scoring system that is differentiated from other tools in the industry, because it not only considers actions within the control of the company being assessed (pillars 1-4), but also enabling factors which include the supportiveness of government policies and maturity of technologies needed for decarbonisation. This is critical to consider given that companies do not operate in a vacuum, and these factors are often ignored by those looking at company actions in isolation from the context they operate in.

Applying our framework

The framework supports investors who wish to complement their fundamental company analysis on climate strategies and with a quantitative credibility framework that pulls in a range of data sources and allows for consistent comparison across firms and over time.

There are a number of use cases for the framework within asset management. For example, abrdn’s active ownership team uses the credibility tool to inform company engagements and set clear objective milestones for companies across all sectors to improve upon their climate targets.

Crucially, the credibility assessment has also been incorporated into the forward-looking climate scenario tool that abrdn has co-developed with Planetrics, allowing investors to better understand and quantify climate risks and opportunities under various possible climate scenarios. The framework has already been used to support clients in the UK, Europe and in other regions globally such as APAC.

Learn more the credibility framework and the methodology underpinning it here.