As a naturally skeptical group, investors might be forgiven for expressing some suspicion at the growth in ‘net zero carbon’ pledges over recent months. One wag on Twitter quipped that he would like to commit to ‘net zero alcohol by 2050’. A preferred New Year’s resolution to the ‘dryanuary’ that would actually compel him to stop drinking alcohol!
Although understandable, we hope that investors in WHEB’s strategies give us the benefit of the doubt when learning of our own commitment to achieve net zero carbon portfolio emissions by 2050 at the latest. As a business that promises to ‘advance sustainability’ as part of our mission, this commitment should at least not come as a surprise.
In fact, WHEB committed in 2019 to achieve net zero carbon emissions from our own business by 2025. In truth, this should be relatively straight-forward to achieve. The real challenge is in achieving net zero carbon emissions from WHEB’s investment portfolios. This was the subject of the Asset Manager’s Net Zero Carbon Initiative that was announced in December last year and of which WHEB is a founding signatory.
The Asset managers’ net zero carbon initiative
This initiative aims to secure further backing among asset managers to eliminate greenhouse gas (GHG) emissions from their portfolios. This is an altogether more difficult task as it requires portfolio businesses themselves to achieve net zero emissions. For an asset manager like WHEB that invests in companies that supply climate solutions, this is particularly challenging. Equipment like wind turbines, electric vehicles and building insulation requires considerable amounts of energy to manufacture and distribute. It will not be enough for these businesses to rely purely on a decarbonizing electricity grid to achieve their net zero objectives.
Nonetheless, our commitment is that by 2025, at least 50% of the emissions produced by WHEB investee companies will be covered by net zero carbon commitments. By 2030 this will have to be 100%. After eighteen months of engaging portfolio businesses on this topic, we have approximately 17% of the portfolio currently signed up.
In addition to securing specific commitments from investee companies, we will also track real greenhouse gas reductions from the portfolio. Our target is to achieve absolute carbon reductions that are consistent with a 50% global reduction in carbon emissions by 2030. The 50% reduction is what is considered necessary to achieve global net zero carbon emissions goal by 2050.
Making net zero normal
By the end of December nearly three hundred companies had made explicit net zero carbon commitments. The Asset Manager initiative includes thirty asset managers that together manage $8 trillion in assets. WHEB’s commitment covers 100% of our assets, whilst other signatories have as yet committed just a portion of their funds under management. The numbers are significant, but both the number of signatories and volume of assets will surely grow rapidly from here. And they will have to.
At the moment, this project is being pioneered by sustainable investment specialists. In November, Vanguard, who is not a signatory to the net zero initiative, announced that they had a single fund that had more than $1 trillion invested in it. Vanguard alone manages over $6 trillion. The UN Principles for Responsible Investment has signatories that collectively manage over $100 trillion. If these universal owners were to support this initiative, we would quickly get to a point where all listed companies would then come under pressure to adopt stricter targets.
Ultimately all managers are going to need to be fully on-board with this agenda. Encouraging companies to go carbon neutral needs to be made a normal and routine part of ownership. Given the investments that companies are likely to have to make to achieve these commitments, it is critical that they receive sustained support from their investors. With nearly two thirds of the global economy expected to commit to a zero carbon agenda in the run-up to the UN climate conference in December, maybe net zero is close to becoming normal already.