Five challenges for net zero investing
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Five challenges for net zero investing

Overview

The Intergovernmental Panel on Climate Change gave the world a stark warning in 2018 of the dangers of failing to limit the global temperature rise from climate change to 1.5 degrees. In recent years we have seen some of the physical impacts of climate change emerge even sooner than many scientists had predicted – including deadly flooding in Europe and China, and the North American ‘heat dome’ that triggered widespread wildfires and continued record breaking temperatures.

 

In the run-up to November 2021’s COP26 climate negotiations, we saw momentum gather behind the ambition of ‘net zero’ greenhouse gas emissions by 2050, consistent with a 1.5 degree trajectory. Over 3000 businesses are now committed,1 as well as the world’s major governments. The investor community has joined the push, via initiatives including the Net Zero Asset Managers Initiative – to which Columbia Threadneedle Investments is a signatory – and the Net Zero Asset Owner Alliance.

 

We have been working on how to fulfil our commitment, and contributing to industry knowledge on net zero investing, particularly through co-chairing the Implementation Working Group for the Net Zero Investment Framework. We have also been discussing our progress with clients, as the net zero journey needs to be a partnership between asset owners and managers. Reaching net zero is critically important, but it is not easy. Here we set out five challenges we have identified so far as we move from commitment to implementation.

Challenge 1: Selecting a methodology
Challenge 2: Avoiding perverse incentives
Challenge 3: Dealing with data gaps
Challenge 4: Accounting for solution providers
Challenge 5: Expanding to all asset classes

Final thoughts

Whilst the road to net zero may seem daunting for investors, the work being done by individual investors and through collaboration is rapidly making progress. Being open about the challenges and limitations of the methodologies we use is essential in terms of communicating honestly with clients and other stakeholders, as well as identifying the areas where further work is needed.

 

We see many opportunities arising from the rapid growth in investor commitment. The analysis of net zero alignment will support the deeper integration of climate risks and opportunities into investment portfolios, through the use of new data sets and analytical techniques. The emphasis on engagement coming out of the methodologies so far developed will add further impetus to investor stewardship, particularly beyond the Climate Action 100+ companies already under intensive focus. And efforts to address data gaps should support better company disclosure, building on progress made by the Task Force on Climate-related Financial Disclosures.

 

Implementing net zero is a huge challenge. But it’s also an exciting new journey for all of us. Being frank about the difficulties we encounter will add to credibility and consistency across the industry. It’s critical we get this right, and fast.

20 October 2022
Vicki Bakhshi
Vicki Bakhshi
Director, Responsible Investment
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Five challenges for net zero investing

Important information

© 2022 Columbia Threadneedle Investments

For professional investors.

For marketing purposes. Your capital is at risk. Columbia Threadneedle Investments is the global brand name of the Columbia and Threadneedle group of companies.
Not all services, products and strategies are offered by all entities of the group. Awards or ratings may not apply to all entities of the group.

This material should not be considered as an offer, solicitation, advice, or an investment recommendation. This communication is valid at the date of publication and may be subject to change without notice. Information from external sources is considered reliable but there is no guarantee as to its accuracy or completeness.

In the UK: Issued by Threadneedle Asset Management Limited, No. 573204 and/or Columbia Threadneedle Management Limited, No. 517895, both registered in England and Wales and authorised and regulated in the UK by the Financial Conduct Authority.

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Important information

© 2022 Columbia Threadneedle Investments

For professional investors.

For marketing purposes. Your capital is at risk. Columbia Threadneedle Investments is the global brand name of the Columbia and Threadneedle group of companies.
Not all services, products and strategies are offered by all entities of the group. Awards or ratings may not apply to all entities of the group.

This material should not be considered as an offer, solicitation, advice, or an investment recommendation. This communication is valid at the date of publication and may be subject to change without notice. Information from external sources is considered reliable but there is no guarantee as to its accuracy or completeness.

In the UK: Issued by Threadneedle Asset Management Limited, No. 573204 and/or Columbia Threadneedle Management Limited, No. 517895, both registered in England and Wales and authorised and regulated in the UK by the Financial Conduct Authority.

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Reaching net zero is critically important, but it is not easy. Here we set out five challenges we have identified so far as we move from commitment to implementation.

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