Many asset owners have adopted the goal of pure zero to manage the investment exposure to climate change risks. The investment goal of Net Zero is to achieve the Net Zero Port Folio Greenhouse Gas (GHG) emissions by 2050, in line with the global goal of zero growth in the real world set by the Paris Agreement. It is for the purpose.
For a strategy for achieving pure zero investment goals, it usually reduces portfolio emissions, reduces migration risks, investing in climate change solutions, using macro trendy opportunities to use engagement and advocacy. It also includes reducing systematic risks.
Adding a net zero goal to a conventional investment program has a challenge for asset owners. This balances the online goal with the responsibilities of the trustee obligation, determine the setting of climate risk policy, the benchmark of the net zero investment strategy, the incentive of the manager, the manager of the manager, and the performance. “Net-Zero Investing: Benchmarks, Incentives, and Time Horizo NS Solutions” investigate these issues and propose solutions.
Purpose of net zero
The goal of net zero must not compromise on the risks, returns, and insurance numbers of insurance. On the contrary, the sufficiently implemented net zero investment program can support the achievement of these purposes in accordance with the responsibility of the trustee duty. Calculation of portfolios and the real world decarbonization means not to end, but to protect and strengthen planning assets.
The concept of trustee obligations differs between regions, but the obligation to act with attention is universally applied. A pure zero investment program that carefully examines climate risk while trying to achieve the financial risk of asset owners, and profit goals that are suitable for these obligations.
Climate risk policy
In the conventional investment program, asset owners can measure investment risks as tracking errors, volatility, risk added value, or average diversified risk metric. Net zero investment program also requires risk measurement. However, the average dispersal analysis does not capture the risk of climate change, as the historical data is insufficient to predict how the risk of climate change affects the stock price behavior.
Portfolio climate change risk is complicated, and there are multiple contribution factors, such as migration, physical risk, and general risk. This is a risk not to be mapped to the average distributed risk tool factors. GHG emissions are widely used as climate risk proxy, but measuring and managing portfolio emissions does not fully consider climate change risk.
Exclusive migration risks include capital spending on corporate science -based emission reduction targets, migration plans, or reducing emissions. Corporate physical risk factors take time and data consolidation. Third -party databases often provide excellent solutions.
As the measurement of climate risk evolves, asset owners can focus on investments related to the highest climate change and usually in public stock portfolios. Risk management also includes upward risk management. Climate change trends and investment in solutions provide opportunities to increase portfolio rates.
benchmark
As with all investment strategies, Net-Zero Investing requires appropriate metric and benchmarks. Some asset owners say that the existing market index benchmarks are defaulted by default, and climate risk management initiatives should be reflected in the portfolio Rates. Others are passively tracked in the carbonized benchmark. Some people create a custom ratence benchmark portfolio that reduces the investment universe in a subset of a company that has a better consistent investment world.
Finally, some asset owners have adopted the “Score Card” approach that combines market indexes to measure the financial performance of each net zero strategic component. Compares the usefulness of the car calibrated benchmark and the score card.
The benchmarks (Pab) and the carbon transition benchmark (CTB) that match the Paris are the most widely used decarbarized benchmarks. PAB and CTB indexes are designed as the derivative index for the parent market index based on the standards set by the European Union. They aim to reduce the amount of emissions by 50 % and 30 %, respectively, and to reduce the annual reduction of 7 %, compared to their parents' indexes.
The carbonized benchmark offers a convenient way to start the Internet Zero Investment Program, but compared to the thumb index, a potentially high tracking error and a limited impact on carbon emissions in the real world. , And in many decarbarized benchmarks, there are several drawbacks, such as lack of carbonization benchmarks. Transparency of construction method.
You can use the score card approach to deal with major problems on the Internet Zero Benchmark. In other words, there is no single index or benchmark that cannot meet all measurement needs of investment programs with both financial risk, return goals and net zero goals.
The score card benchmark can include a series of metric or performance indicators that measure both financial goals and net zero goals. As an example, the British pension system established three important expectations for external asset managers as part of the Internet Zero Investment Program. (1) Climate risks and opportunities using TCFD frameworks, (2) Reduced emissions, 3) vote for the company's transition plan and efforts, and involved.
NEST is responsible for the managers for the purpose of climate change in addition to the financial goals. Score card benchmarks are commonly used in other industries to measure performance. The only performance benchmark depends on the market index in the investment industry.
Incentive
Asset administrators who have been compensated only to defeat the market index cannot directly pursue investment measures that contribute to the pure zero target of asset owners. To motivate the manager to achieve the goal of the Internet, the asset owner must provide an appropriate incentive.
Asset owners have little effect on asset management compensation systems, but can set the delegation of the net zero, including the fact that the reward structure is fully motivated. In the 2011 report titled “Impact Base Interive Structure”, Global Impact Investment Network (Giin) gives an impact -based reward, such as whether the asset owner rewards for short -term and long -term performance. It suggests that some factors take some factors when determining how to configure them. Both period performance and both.
The industry has just begun to see the emergence of an incentive compensation structure of the Internet. As an example, one asset manager links the deferred reward to the net zero target. We expect further development as the investment of Net Zero gains momentum.
Time of view of time
The long -term goal of achieving net zero goals by 2050 must be achieved by satisfying the provisional target over the short and medium period. Climate change can affect portfolio assets in both short -term and in the next few years in order to reduce this systematic risk. Evaluation of the success of the Internet Zero Investment Program must reflect this reality. This is in contrast to the rhythm of most performance goals in three to five years.
In order to achieve the goal of the Internet zero, asset managers invest in time and resources to evaluate corporate transition strategies and risks, measure the emission route, measure the opportunity to migrate sources, and measure companies and policies. You need to engage in changes. Asset owners need to give the manager a sufficient opportunity to succeed.
For example, five -year periods increase the possibility of succeeding in engagement and advanced emissions. In fact, asset owners have set a variety of target dates from the beginning of 2025 to the beginning of 2040, and generally has several provisional dates.
Future Internet Zero Investment
What can you say about the future of Net-Zero Investing? The planet is undergoing climate change that promotes one of the most important economic transitions in history. The emission reduction plan and programs have become established, climate change solution opportunities have increased, and as the industry develops better tools and skills for measuring and managing climate change risks, online zero investment continues to increase. I expect it.
