In the run-up to COP26, a flurry of asset managers pledged to reach net-zero greenhouse gas emissions for their investment portfolios by 2050. Those who have already formulated interim emission reduction targets for 2030 have mostly opted for relative rather than absolute targets.

Most of the 20 largest institutional asset managers in Europe, as per IPE’s Top 500 ranking, have now made net-zero-by-2050 commitments.

Only a handful of these asset managers have disclosed an interim reduction target for 2030, however. Under the Net Zero Asset Manager Initiative (NZAMI), which most of these asset managers have signed, they have until next year to formulate such targets.

NZAMI now has 220 signatories who together have over $57trn (€50trn) in assets under management.

Achmea Investment Management, a €150bn pension asset manager from the Netherlands, is the only top 20 asset manager with a 2030 goal to have formulated an absolute emissions reduction target.

In 2030, the firm wants to have reduced the carbon footprint of all its liquid investment funds by 50% compared with 2015 levels.

“By formulating an absolute reduction target for 2030 ourselves, we are trying to push companies to do the same, and to implement these targets in their strategy and also their renumeration policies,” said Marc Hutten, investment solutions specialist at Achmea.

Abrdn, DWS, Legal & General Investment Management and UBS have also set 50% reduction targets for 2030 – although with 2019 as the baseline – but of carbon intensity.

The Portfolio Alignment Team, whose work is being taken up by the Glasgow Financial Alliance for Net Zero, said carbon intensity can be expressed in physical units, for example per barrels of oil produced or watts of generated electricity, or economic units, such as revenue.

The latter method is often referred to as weighted average carbon intensity (WACI).

‘Interesting twist’

Another way to calculate carbon intensity is as CO2 emissions per euro invested. This method has a link with equity prices: carbon intensity reported this way drops automatically if the value of a company’s share rises, while absolute emissions remain unchanged.

Willemijn Verdegaal, co-head of climate & ESG solutions at consultancy Ortec Finance, described measuring carbon emissions this way as “an interesting twist”.

“I’m not at all sure how you will ever reach net zero if you opt for this method,” she said. At the same time, Verdegaal said she does not believe there is malice behind choosing this method.

“Many asset managers are still looking for the right way to implement a net-zero strategy,” she said. “It’s a relatively new area of expertise, and methods to measure carbon emissions are still under development.”

However, in her view asset managers should adopt absolute emission reduction goals. “In the end, it does not matter how well we do on a relative basis,” she said. “If your aim is to comply with the goals of the Paris Agreement, you will have to formulate absolute reduction targets for carbon emissions.”

The Partnership for Carbon Accounting Financials (PCAF), an initiative launched by 15 Dutch financial institutions that aims to develop a standard method to measure carbon emissions, discusses emissions per euro invested as a possible method but expresses a preference for using physical intensity metrics as these have “a stronger link to counterparty production decisions and less exposure to volatile economic indicators”.

Despite the method’s drawbacks, some asset managers, including NN Investment Partners and Robeco from the Netherlands, have opted to measure carbon intensity as a function of assets under management. LGIM is also considering using the measure. 

A Robeco spokesperson defended the firm’s choice to measure carbon intensity as CO2 emissions per invested euro. She said: “It enables asset managers to simultaneously green their portfolios and grow their assets under management. If you use absolute targets, this will limit future growth of assets under management.”

Dutch pension regulator DNB sees WACI as the “recommended method” to measure carbon intensity.

“A disadvantage of [tonnes of CO2 per euro invested]… compared to the WACI, is that it does not consider the added economic value – or the revenue – of the issuer,” it said. ”This is a limitation, since normalising by the issuer’s revenue allows to measure how efficiently a company is able to produce relative to how much they emit”.

A DNB spokesperson added that the best way forward may be, however, to use a combination of the aforementioned metrics.

“Every indicator offers a different perspective and when combined a better total picture may result. However, it remains important to be transparent about the exact methods and data sources used.”

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