Institutional Investors, Asset Managers, Shift to Net-Zero Targets

ESG

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A higher number of institutional investors, asset managers, and asset owners are moving towards net-zero goals, as attention on climate change risk increases.

A Cerulli Edge report found that while 14% of asset owners have a formal net-zero commitment, an additional 25% plan to create one within the next 12 months. Specifically, 30% of institutions are investing in strategies that support transitions to a carbon-neutral economy, and 36% plan to invest in these tactics within the next year.

Others are moving away from coal, gas, and oil companies, as half of institutions surveyed say they will either be divesting (29%) or plan to divest (21%) from fossil fuel funds.

Even with a rising interest in sustainable investments, fossil fuel funds remain relatively prominent due to its high returns, even if they are not as profitable as once before. According to As You Sow, a non-profit that promotes corporate social responsibility practices, 19% of the market cap of U.S. fossil fuel companies comes from investments in U.S. 401(k) accounts and individual retirement accounts (IRAs).

Now, institutions are enacting these changes in order to prioritize and address climate risks, with 61% saying the issue of climate change is the top theme in their responsible investment strategy, found Cerulli.

Despite their determinations, investors continue to face difficulties when analyzing carbon footprints of underlying investment portfolios. The lack of climate transition-related data has challenged investors in understanding which companies are being transparent and dedicated to their climate change commitments.

However, new platforms like the Net-Zero Data Public Utility (NZDPU) database are expected to soon enter the market and establish reliable and accessible climate data across multiple industries.  

The database, formed by French President Emmanuel Macron’s and Michael Bloomberg’s Climate Data Steering Committee (CDSC), is designed to be integrated with the UN Framework Convention on Climate Change’s Global Climate Action Portal, which identifies how companies, investors, organizations, regions, and cities are engaging in global climate action.

As more investors reexamine their contributions to climate change, Cerulli says it expects to see a rise in collaborations that promote transparency when analyzing climate-related funds.

“The development of such platforms will provide investors with more complete information about their exposure to climate-related financial risk,” says Gloria Pais, an analyst at Cerulli. “Looking ahead, Cerulli anticipates an increase in industry partnerships with current disclosure platforms to enhance consistency and provide managers, investors, and other industry professionals with the data they need.”

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