Sir David Attenborough, 2020, A Life On Our Planet
Net-zero emissions are necessary for global warming to stabilise. Companies in all sectors of the economy will need to develop strategies contributing to a carbon-neutral economy to avert human-made climate change.
Since April 2020, six governments have formally established net-zero targets between 2045 and 2050 (Sweden and Scotland by 2045, UK, Denmark and New Zealand by 2050). However, many scientists advise more immediate and decisive action be taken towards a net-zero economy.
Our Net-Zero Carbon 10 (NZC10) target was designed as a way to help funds better align their investment policies with carbon-neutrality, not just emissions reduction. It is designed to be practical to implement by fund managers and easily understood by investors.
Few sustainable funds challenge
company boards on their strategies to achieve net-zero carbon emissions. This meant a target with a
systematic framework was needed to help with engagement.
Our NZC10 target for investors helps direct capital to promote the transition to a carbon-neutral economy.
Financial markets play a crucial role in supporting companies that have achieved net-zero carbon emissions, as well as those starting that journey.
NZC10 promotes investment in carbon-neutral firms and provides a framework for stockholders to engage with company boards to develop strategies for net-zero emissions.
By adopting NZC10 fund managers and other investors in direct securities join a group of investors that intend to promote beneficial economic change addressing global warming.
Investors tackling climate change often consider emissions reductions. NZC10 provides additional focus on the urgent need to achieve net-zero emissions.
NZC10’s net-zero 2030 target demonstrates climate ambition materially ahead of 2050. The target provides a systematic framework to help investors measure their progress on addressing global warming.
Current rates of CO2 (and other greenhouse gases such as methane and nitrous oxide) increases in atmospheric concentrations and the associated radiative heating are unprecedented for the ice core records of the last 22,000 years.
Global warming could be sufficient to significantly disrupt modern-day agriculture to an extent that would result in major food shortages. Sea levels are also effected by climate change, with estimated rates of mean global sea level rising. If these rates persist over long periods this will have important consequences for heavily populated, low-lying coastal regions, where even a small sea level rise can inundate large areas.
Further, for species, climate is one of the most important physical limiting factors; climatic changes have unquestionably caused many extinctions. Indeed global climactic change may be the single most important proximate agent of mass extinction.
Carbon reduction without a net-zero goal risk falling into a Malthusian trap
The science showing how extreme weather events can be attributed to human-induced global warming is developing rapidly. On average, global warming is currently increasing at a rate of about 0.2 °C per decade from today’s level of approximately 1 °C, and may be accelerating. This is the amount the earth’s climate has already warmed above pre-industrial levels. If we follow the current emissions’ trajectory, the 1.5 °C threshold could be exceeded between the years 2030 and 2050.
The UN Framework Convention on Climate Change’s (UNFCCC) Paris Agreement acknowledges that even if global temperatures are stabilised below the 1.5 °C target and well below 2.0 °C above pre-industrial levels, the impacts will continue to be felt, such as more frequent extreme weather events (UN FCCC 2015).
" The central tenet of our Global Sustainable Equity Strategy is that the world must meet sustainability challenges with radical solutions. The NZC10 will help frame the way asset managers invest and their engagement activities relating to carbon emissions. It will also provide a tangible way for investors to assess which funds genuinely have a positive impact on carbon emissions, and which are simply “greenwashing”.
Our fund already goes beyond the base requirements set out. For every company we examine, we analyse the net carbon impact across Scope 1, 2 and 3 emissions, considering the impact of the whole value chain and not just direct emissions."
"At Alquity, we believe in a fair and just transition to a net zero carbon emission global economy. By supporting the NZC10 Initiative, particularly within Emerging Markets, we want to help accelerate this transition through tangible and proactive engagement with companies in developing economies. "
The Alquity Virtuous Circle business model means our Future World and Asia Funds also donate 10% of their fee revenues to social development projects where we invest. So, not only do we ensure that economic growth is within the planet’s ecological limits but that we tackle social issues, such as poverty and inequality at the same time.
"Our mission is to accelerate the transition to a positive future and create wealth for our clients by actively investing in companies that have transformational positive impact. We believe the best long-term growth investment opportunities will be innovative companies who are addressing the most significant sustainability challenges, because innovation creates the most value, where frictions are most acute.
The climate crisis is the most significant sustainability challenge that we all face. As positive impact investors, we expect the companies that we invest in set ambitious goals and seek to improve continuously. The NZC10 initiative with its ambitious yet achievable targets for carbon reduction provides us with a useful framework to engage with companies to significantly reduce their greenhouse gas emissions."
"Since its 1991 launch, low carbon investing has been a central aspect of the Janus Henderson Global Sustainable Equity fund’s philosophy. Janus Henderson ESG analyst Ama Seery said: ‘The fund already meets the NZC10 standard, which sets ambitious yet achievable targets for carbon reduction to help prevent the disastrous and irreversible consequences of climate change."
‘A key outcome has been the impact it has had on our engagement, galvanising our discussions with companies that have started a low carbon journey, but have no targets to achieve neutrality by 2030. This engagement has been positively received; strengthening our relationship and dialogue with the companies we invest in.’
‘Climate science is saying we need to make bigger and faster CO2 emissions reductions than most people think,’ said Liontrust investment manager Mike Appleby.
‘This NZC10 initiative is a great challenge to investors and the companies they hold to concentrate on what this urgency means for their business over the next decade.
‘The Liontrust Sustainable Future Corporate Bond fund is already skewed away from carbon-intensive businesses making it easier for these companies to approach carbon neutrality. But even the most progressive businesses still need to scale up their ambition to achieve net zero carbon in the next decade. We will continue to challenge them to do so.’
The Montanaro Better World fund has a global small cap focus and with smaller companies typically lagging on setting and reporting non-financial targets, this makes them ripe for impact, the firm believes.
‘Just 44% of our companies currently report Scope 1 and 2 emissions and very few have net zero carbon strategies in place,’ said Montanaro sustainable and impact investing specialist Ed Heaven.
‘We engage with our investee companies to deliver impact. As long-term shareholders, our voice tends to be listened to. We are working with all of our companies to encourage them to set, and meet, net zero carbon targets within a reasonable timeframe.’
Alex Monk, Portfolio Manager, Schroder Global Energy Transition Fund, said: “In order to successfully mitigate the devastating impact of further climatic change, reducing our global greenhouse gas emissions will not be enough. Instead, we need to take actions now that will result in net-zero atmospheric emissions in the future.
“Our global energy transition strategy aims to identify and invest in companies worldwide that are providing value-accretive solutions that will help to achieve a net-zero energy system. But as well as providing the key technologies and services to help achieve this goal, it is crucial that these companies are also managing their own impact on our planet. Supporting companies with clearly defined net-zero emissions targets of their own – and engaging those companies that do not to adopt them – is therefore an important part of our investment philosophy, and something that we believe will also contribute towards more sustainable long-term investor returns”.
Climate change and its effects are accelerating, which means we are running out of time. Without strong action from all global stakeholders, future generations will be forced to cope with the adverse effects of uncontrolled climate change. We believe the financial sector must take the lead in addressing the climate crisis, because they have the capacity and obligation to finance entrepreneurs and institutions committed to tackling major social and ecological issues. The NZC10 initiative helps investors to more consciously direct capital towards the transition to a more sustainable economy.
Since its inception, Triodos Investment Management finances projects with a positive impact on society and the environment. As such, the companies included in the portfolios of Triodos Pioneer Impact Fund, Triodos Global Equity Fund and Triodos Sterling Bond Fund are already well positioned with respect to carbon neutrality.
Joe McTaggart, Walls & Future CEO said, "As we move forward through a period of growth, our Ethical Investment Policy will guide our thinking to ensure we deliver on our mission in a responsible manner, mindful of our environmental and social impact.
As a developer of Specialist Supported Housing we are committed to delivering buildings that are net zero carbon emissions over their whole lives. Our intention is to utilise the framework created by the UK Green Building Council on our bespoke housing solution for Autism, both minimising the carbon emissions from the construction process and emission for the in-use operational energy.
Our believe our Ethical Investment Policy will serves as a screening guide for individual and institutional investors seeking credible and impactful ESG/ethical investments."
WHEB Head of listed equity research and partner Seb Beloe said it is now abundantly clear that the global economy is on an unsustainable trajectory, with new reports, seemingly every week, documenting the staggering impact that humans are having on the planet.
‘The WHEB Sustainability fund only invests in companies that supply solutions to these pressing challenges. The NZC10 target is a demanding test of the extent to which fund managers are serious in their efforts to tackle climate change,’ he said.
‘We are pleased that WHEB’s fund passes this challenge. However, much, much more is necessary, and we will be pushing the climate agenda more assertively with investee companies over the coming months.’
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