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Cerulli: Nearly one-third of investors commit to net-zero goal

Tuesday, January 11, 2022
Opalesque Industry Update - A growing list of investors have pledged to achieve net-zero carbon emissions in their investment portfolios by 2050. Nearly one-third (31%) of asset managers and institutional asset owners (32%) have made a formal commitment to a net-zero goal, and another 21% and 29%, respectively, plan to do so in the next 24 months, according to Cerulli's report, U.S. Environmental, Social, and Governance Investing 2021: Aligning Investment Portfolios with ESG Considerations.

Asset managers and institutions are taking multiple actions to achieve their climate change goals, including active ownership, divestment, and investment in climate solutions. Greater than two-thirds (69%) of asset managers and 41% of asset owners are voting proxies and supporting public shareholder proposals in favor of climate-related issues. Exactly two-thirds (67%) of asset managers and 41% of institutions are developing or investing in climate change solutions. More than half (61%) of asset managers and greater than one-third (36%) of institutions are having dialogue with companies and their management teams to reduce carbon emissions. "The rules of engagement have changed for the industry as a number of stakeholders, including peers, are putting pressure on investors to commit to net zero," states Michele Giuditta, director.

As they pursue plans to achieve climate change goals, investors are also gauging progress through measuring and reporting on the underlying sources of carbon emissions, forward-looking metrics on physical and transition risks, and their alignment to a two-degree scenario. The most common type of reporting used by asset managers is carbon footprinting, with more than two-thirds (79%) of asset managers polled measuring the carbon emissions in their portfolio and success toward their net-zero goal. Nearly one-third (32%) also prepare climate scenario analysis and reporting on portfolio exposure to physical and transition risks. "Given that achieving net zero is a rapidly evolving endeavor, the details of investor climate plans will change as policy, information, frameworks, and investment solutions advance," remarks Giuditta.

Separating the underlying portfolio companies that are greenwashing versus truly making efforts to reduce their greenhouse gas emissions remains a barrier, according to the research. "While progress on standardization of disclosure and measurement is being made, there are multiple publicly available and service provider tools using varying methodologies, different data sources, and different metrics. This makes it challenging for investors to navigate and identify climate risk and alignment to net-zero goals," states Giuditta. "To alleviate skepticism around whether these commitments are real, shorter-term goals with time-bound milestones, consequences for inaction, and transparency into progress are necessary," she concludes.

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