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Outlook
June 3, 2021
4 mins

Getting to zero: What does it mean for investors?

June 3, 2021
4 mins
Harlin Singh Urofsky
Global Head of Sustainable Investing
SUMMARY

In our view, it is already clear that companies that identify and implement innovative solutions to achieve net zero will be favored by investors. We also believe those that do not will be left behind.


The world is facing a climate catastrophe. Humanactivity is already estimated to have caused global warming of around 1° Celsius over pre-industrial levels. The consequences for people, wildlife and planet are severe. Aside from extreme weather events and destruction of natural habitats, global warming contributes to poverty, food scarcity and disease.

Those who earn less than $1 a day are particularly vulnerable due to their high dependence on natural resources for food and income, as well as to their proximity to the growing, virus-bearing mosquito population. Even in the developed world, low-income city dwellers are worse affected by pollution and are likelier to live in areas exposed to climate change.

To avert even more devastating consequences, the scientific consensus warns that further warming must be limited to 1.5° Celsius above pre-industrial levels. To achieve this, humanity must strive for “net zero” emissions by mid-century. This requires significantly reducing human-caused emissions of greenhouse gases, such as those from burning fossil fuels.

The remaining emissions are then balanced out by methods such as capturing and storing carbon from the atmosphere, but also by reforestation. Reaching net zero by 2050 is an enormous task, with approximately $131 trillion of investment required in renewable energy, electrification, efficiency and infrastructure.1

While governments play a key role in setting net zero targets, leadership from industry and corporations is critical. Today, approximately 20% of the largest global companies and 100 nations have set such targets.2 Growing recognition of the potential climate disaster is a key driver here. However, companies that show leadership are also likely to be viewed more favorably by investors and consumers. They might thus enjoy a lower cost of capital and more demand for their products and services.

Ambitious corporate targets do not equal outcomes

More and more, investors are scrutinizing companies’ performance in relation to environmental, social and governance (ESG) issues. They are showing an increasing preference for investing in companies that are reducing their carbon footprint, cutting emissions across supply chains, and embedding innovative sustainability frameworks. Such investors understand the climate-associated risks to operations and the pending regulatory risks to companies that do not transition quickly enough. Not only are investors seeking evidence of climate risk mitigation in their investments, many are also seeking investment growth opportunities around the creation of technology and infrastructure to enable the achievement of net zero.

The prevalence of greenwashing – where companies seek reputational benefits by misleadingly claiming they operate sustainably – creates a challenge for investors. It is important to keep in mind that ambitious corporate targets do not equal outcomes. For each target, investors should gauge the range of emissions included in companies’ calculations, their plans for achieving it, their timeline, and their progress to date.

Investing with Purpose – our sustainable investment platform – consists of in-house and third-party investment managers who are actively engaged with portfolio companies, seeking to ensure that targets are met. We also offer access to strategies linked to key performance indicators that relate to a low carbon transition, as well as green and social bonds that fund environmental goals.

For suitable clients, we also offer direct investments in companies that are seeking to make a positive impact. Whether clients seek exposure to individual investments or wish to build entire core and opportunistic portfolios aligned to their values, we can help them realize their sustainability goals – including a net zero world.

This bi-line was featured in Mid-Year Outlook 2021

12021 World Energy Transitions Outlook, International Renewable Energy Agency, March Preview, 2021.

2Taking stock: A global assessment of net zero targets, Energy & Climate Intelligence Unit, as of Mar 2021.
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