Large investors commit to carbon neutral portfolios by 2050

But with a report suggesting that many companies under-report their climate impact, how can they be sure?

Large investors commit to carbon neutral portfolios by 2050
Steve Randall

Some of the world’s largest investors have committed to carbon neutral portfolios by 2050.

The UN-backed Net-Zero Asset Owner Alliance was announced this week and includes Canada’s CDPQ along with global partners such as Allianz, Zurich Insurance, CalPERS, and Nordea Life & Pension.

“The Net-Zero Alliance is the recognition that institutional investors collectively have an important role to play in fostering the energy transition the world needs. For investors like CDPQ, there are so many opportunities to earn commercial returns by investing in low-carbon solutions and to work with portfolio companies to decarbonize,” said CDPQ CEO, Michael Sabia. “Combined with the necessary changes in public policies, investors’ actions will induce real change in every sector.”

Together the alliance partners are responsible for U$2.4 trillion in investments and they will immediately start to engage with the companies in which they are investing to ensure they decarbonise their business models. 

Their aim is to ensure that the rise in the global temperature is no more than 1.5 degrees.

“Mitigating climate change is the challenge of our lifetime. Politics, business and societies across the globe need to act as one to rapidly reduce climate emissions. We, as asset owners, will live up to our responsibility and, in dialogue with the companies in which we invest, steer towards low-carbon business practices. We’ve already started and, by 2050, our portfolios will be climate neutral,” said Oliver Bäte, Allianz’s CEO.

To have maximum impact, existing Alliance members actively encourage additional asset owners to join them in their quest to decarbonise investment portfolios and achieve net zero emissions by 2050.

But are firms fully reporting their emissions?

While the ambitions of the investors are to be applauded, a new report suggests they will need to be rigorous in their scrutiny of the companies in which they invest.

The report from Arabesque S-Ray, an AI-driven technology that systematically combines over 200 ESG metrics with news signals from over 30,000 sources across 170 countries, reveals that 78 of the world’s 200 largest firms do not fully disclose their greenhouse emissions data.

The firm’s Temperature Score shows how corporations worldwide report GHG emissions and contribute to global warming. The tool is the first of its kind that is based entirely on reported data and identifies companies that have incomplete emissions reporting.

"The key purpose for developing the Temperature Score is to increase transparency and accuracy around emissions reporting, highlighting those companies that are taking action towards limiting global temperature rise,” explained Andreas Feiner, CEO of Arabesque S-Ray GmbH. “Too many companies still do not publicly report their emissions, yet despite this, investors are still integrating climate scores into their investment decisions. How? By estimating emissions data using models.”

Feiner says this strategy means that investors are not accurately managing risk as there is no way to determine which firms are taking the lead on climate action and those that are not.

“Consequently, non-reporting, high emitting companies are not incentivized to report. Companies may appear to be taking steps to reduce their impact on climate change, but without public scrutiny of the data, this cannot be verified. Through the Temperature Score, we want to bring greater transparency to emissions reporting, and empower all stakeholders," he said.