A set of case studies published by The Investor Agenda, which includes Asia Investor Group on Climate Change (AIGCC) as a core member, shows asset owners taking firm action on net zero commitments — but also acknowledging that there is lots of room for improvement.
“Asset owners have different starting points across the Investor Climate Action Plans (ICAPs) Ladder, but it is important to make a start by making transition plans and having clear targets. Implementing ICAPs is a work-in-progress, and even in The Investor Agenda case studies, asset owners recognise that there are areas that require improvement,” Jane Ho, director of investor practice at AIGCC, told AsianInvestor.
“The ICAPs case studies see asset owners taking action across all ICAPs pillars: corporate engagement, investment, policy advocacy, and investor disclosure, with governance as a cross-cutting theme across all four areas,” said Ho.
In the case studies, the asset owners highlight transition plans and net zero commitments to support the Paris Agreement, with targets set across short, medium, and long-term periods.
The 10 investors featured in the case studies are from five continents, including three from Asia: Cathay Financial Holdings (Taiwan), Mirae Asset Global Investments (South Korea), and Sumitomo Mitsui Trust Asset Management (Japan). The other investors featured were Allianz (Germany), Aware Super (Australia), CalSTRS (US), FAMA Investimentos (Brazil), IFM Investors (Australia), PensionDanmark (Denmark), and UniSuper (Australia).
“An emerging theme we can expect to see is how companies impose escalation strategies on voting guidelines,” said Ho.
The case studies show that asset owners recognise the importance of integration of climate-related financial risks and opportunities, along with getting stakeholder buy-in to build a robust climate action plan.
The ICAPs Expectations Ladder uses a four-tiered system approach to measure progress, with Tier 4 indicating investors who are beginning to think about climate action, and Tier 1 capturing investors who are net zero standard setters.
“Regional context is also important. For example, in some Asian regions, lobbying may be banned and some escalation tactics may not be as effective. Considering this regional perspective is important to demonstrate the nuanced individual approach towards ICAPs.”
ALL IN THE DETAILS
For many of the asset owners who participated, the case studies asserted that meaningful action on climate change requires major global institutional investors to put effort and capital into climate solutions.
“Our case study highlights the importance of our detailed Climate Change Transition Plan with portfolio-wide targets and our strategy to measure and monitor our progress towards those targets,” a spokesperson for Aware Super told AsianInvestor. “It also highlights the importance of all levels of the organisation being part of the journey to achieve our climate action targets.”
Aware Super’s achievements so far include a public commitment to net zero by 2050; a $1 billion committment to renewable and low-carbon technologies in its infrastructure and private equities portfolios in FY21; divestment of thermal coal miners; and reducing the emissions intensity in its listed equities portfolio by 45%.
“Still, there’s a significant amount of work to be done to achieve our long-term goals, and Aware Super will continue to report on its actions and progress,” said the spokesperson.
Chris Newton, executive director of responsible investment for IFM Investors, said the case study process undertaken by the AIGCC is a vigorous one, and he would encourage others to take part in this process in the future.
“What is clear is that IFM has made significant progress when it comes to our plans to reduce emissions across our asset classes targeting net zero by 2050, including setting a 2030 interim target for our infrastructure portfolio and achieving carbon neutrality for our Private Equity portfolio businesses,” Newton told AsianInvestor, “but we know that there is still more work to do.”
For California State Teachers’ Retirement System (CalSTRS), the case study highlighted their process and progress toward implementing its pledge to achieve net zero by 2050 or sooner.
“We made the pledge in September 2021 and have already developed our internal governance structure, spoken with dozens of investment colleagues about how they are approaching net zero integration, and started the process to measure our public-market carbon-emissions exposure,” a spokesperson for CalSTRS told AsianInvestor.
For Aware Super, the greatest challenge as an asset owner managing climate risk across a $155 billion portfolio is the sheer scale and diversity of its investments, and the geographies they’re located in.
“We recognise the importance of setting ambitious targets across the short, medium and long term, and reviewing our progress against those targets. We also work with our fund managers as well as our investee companies to understand their carbon footprint and plans to transition to a low-carbon economy,” said Aware Super’s spokesperson.
Similarly, the size and complexity of CalSTRS’s net zero pledge posed one of the greatest early challenges for the US pension fund.
“Each asset class operates a bit differently, so getting all of our asset classes working together was somewhat challenging. But building off existing internal models, learning what others are doing, and leveraging our relationships with other investors have allowed us to create a strong base from which we can implement our pledge,” said the spokesperson for CalSTRS.
All three of the asset owners who spoke to AsianInvestor found that the lack of data and process around measuring emissions exposure in the private markets continues to pose a challenge to green transition. Despite there being many service providers and investor platforms available in the public markets, most private asset classes are still developing ways to measure portfolio emissions exposure.
“Like all investors, an ongoing challenge is accurate and consistent data across sectors and geographies. We have invested heavily in this area and due to our active stewardship of assets, we are able to work alongside our investments to improve this,” said IFM Investors’ Newton.