Carbon reduction targets ‘taking the easy route’

Carbon reduction targets set by boards and superannuation fund trustees are “taking the easy route” to decarbonisation, according to Ninety One.

Speaking on a panel session at the United Nations Climate Change Conference (COP26) this week, John Green, chief commercial officer at Ninety One, said firms may have been setting ambitious targets but this could be counterproductive to long-term change.

The pursuit of simplicity is working against the kind of thoughtful investment required to meet the innovation and financing challenges we face,” he said.

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“Linear portfolio carbon reduction targets ambitiously set by company boards and pension fund trustees mean that capital takes the easy route – why try to explain that portfolio carbon has increased in pursuit of greater impact and an effective transition when it is easier just to sell the high emitting companies and countries?

“Selecting low carbon trackers or excluding high emitters from portfolios does nothing for decarbonisation in the real world. An energy company on a strong transition pathway should not be treated in the same way as an energy company committed only to hydrocarbon generation.”

A better way, Green said, would be for firms to reward those companies which were actively pursuing a transition and redeploying cashflow into new technologies and products with lower costs of capital. This would allow active managers to harvest the transition premium which would be a meaningful source of return in the next decade.

“To achieve a successful net zero mission, the capital markets must function by rewarding the companies and countries who are most actively facing off to the transition challenge, regardless of their sector,” Green said.

“The time has now come for portfolios to make a difference rather than making a statement. Asset owners and asset managers must work together to avoid taking the easy route and lean into the challenge. Decarbonising by numbers will not do the job.”

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