Actions speak louder than words for ESG investors

Investment portfolios are being revamped to contain more carbon-friendly holdings, and companies headed towards net zero will be challenged to report more and share everything.

In March 2021, the Institutional Investors Group on Climate Change (IIGCC) launched the Net Zero Investment Framework to help investors assess the sustainability and carbon status of companies. This is a big, green step for asset managers, and IIGCC says that 38 investors, managing $8.5 trillion in assets, are already on board.

There’s a lot at stake for heavy-asset companies who may not yet be on course for net zero. An International Energy Agency report states: “No sector can escape the need to dramatically reduce emissions in a pathway towards net-zero emissions for the energy system. The heavy industry sectors and long-distance transport modes are areas where emissions are particularly ‘hard to abate.’” 

If you commit, the investors will come. Barry O’Dwyer, CEO of Royal London Group said (in the Net Zero Framework announcement) that: As institutional investors we must influence the companies we invest in to reduce their emissions and invest in the solutions that will help us realize the goals of the Paris Agreement.” In other words, O’Dwyer and his fund are going to put their money where they see actual climate progress.

Transparency will be key. Investors will require tangible results and clear signs that the targets are within reach. A 2020 KPMG report highlighted that a key challenge towards net zero will be the quality, quantity, and comparability of carbon disclosures. With IIGCC’s new Net Zero Framework now at play, these disclosures are even more critical to secure investor money.

Get the data in order. A World Resources Institute report says that sustainable asset managers face challenges related to the ESG data from companies. It’s not standardized, it’s inconsistent, and it has limited transparency. While data gaps in terms of emissions reporting may have once been accepted, that’s no longer the case. And today, there’s no shortage of guidance on the types of targets companies should be setting.  

Investor dollars will follow the data. “The companies that will win in a greener investment future are the ones that have their data in order,” said Christina Chappell Glenn, Head of Investor Relations for Aker Group to Ignite Media. “Investors will need access to this data to make decisions, and it’s the companies who track, capture, and report on their carbon improvements – as thoroughly as they do with their financial data – who will win in the end.”

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