Despite an increasing number of money managers and asset owners committing to achieve net-zero greenhouse gas emissions in their portfolios by 2050, the industry cannot lose momentum and capital is at risk if arrangements are not put in place.
The warning comes in a paper by Generation Investment Management, one of 30 founding signatories to the Net Zero Asset Managers Initiative launched in December. Signatories collectively manage $9 trillion in assets. In July, the $30.7 billion money manager committed to being net zero by 2040.
"Net zero will be the law of the land in the major economies sooner rather than later, where this isn't already the case. Waiting to put net-zero arrangements in place is putting capital at risk and increasing the chances of being caught out by sharp policy adjustments in key markets," the paper said.
"This piece is ... partly designed to continue that mobilization of interest in the initiative itself, but also designed to articulate some of the key challenges and opportunities when the rubber hits the road," Felix Preston, director of sustainability insights and co-author of the paper, said in an interview.
Generation identified seven key challenges for money managers to consider as they move toward net zero. Among those considerations is that moving to net zero "impacts investment both through capital allocation choices and engagement," and having the right processes in place along with "credible interim net-zero goals is key." Managers can also build confidence and momentum by reporting on progress over time with transparent methodologies and assumptions.
Another challenge is that of "evolving science" — since scenarios are subject to change as the science related to climate change evolves. "Net-zero investing must be agile enough to incorporate these advances at global and sectoral level," the paper added.
"We're all on a ticking clock with climate science — there's no question that everything almost has to happen yesterday to make this work," Mr. Preston added.
In the same interview, Edward Mason, director of engagement and impact reporting at Generation and co-author of the paper, said: "We need to see a lot more (announcements of managers moving to net zero) — this needs to become the norm."
Not enough people understand that "we are really short of time on this issue," he added.
Partnerships are important in achieving net zero — between money managers and asset owners and also money managers and companies. "Net zero has to be a common goal," Mr. Mason said.
The two executives expect further momentum this year, particularly with the postponed United Nations climate change conference, COP26, set to take place in November in Glasgow, Scotland.