How has your net-zero approach evolved?
The sixth and latest report by the United Nations’ (UN) Intergovernmental Panel on Climate Change (IPCC) in August 2021 warned that the world would reach 1.5 degrees Celsius of warming by 2030 under all scenarios examined.
At recent UN climate change conferences there has been much talk but still a relative dearth of concrete detail over how net-zero carbon emissions would be achieved. What is clear though is that if we are to collectively hit the pledged net-zero targets, there will need to be an extraordinary and global effort, and asset managers will have a crucial role to play in the transition.
At Newton, we have joined the Net Zero Asset Managers initiative, and have aligned ourselves with an independent methodology guided by the Science Based Targets initiative (SBTi). Through the latter, we are committing to having 50% of the financed emissions of the companies we invest in on behalf of our clients tied to credible net-zero plans by 2030, with the aim of reaching 100% by 2040.
We will seek to meet these headline targets via a range of transparent measures around investments in climate solution providers, engagement with heavy emitters to support their energy transition, and active stewardship activities.
We emphasise the importance of emissions pathways and we are led by science (and by the SBTi where the guidance is available). This forces us to focus on real-world emission reductions rather than superficial portfolio decarbonisation. This guides our priorities around focusing on the regions, sectors and companies that are the most carbon intense.
Why shouldn’t investors just divest from heavy emitters?
We think that simply cutting out certain sectors is not necessarily going to translate into real-world decarbonisation, which is ultimately what we want to achieve. As active investors, we believe the right approach is not to divest completely from the high-emitting companies, but to engage with them while seeking to also allocate to companies that are doing the most to effectively create credible and effective transition plans.
Negatively affecting the cost of capital through mass divestment will not necessarily help a company change its business. Importantly, we also need to ensure that those plans are economically fair and socially inclusive, and aim towards a just transition, because we know that tackling such a multifaceted problem will create some trade-offs, and there will be winners and losers in the transition.
We are, however, prepared to divest from securities where appropriate (and, of course, to exclude them where client or strategy mandates require).
What about charities that face reputational risk?
Our 2022 Charity Investment Survey showed that 59% of charities consider engagement to be the best way to manage climate-change factors in their portfolio. However, we recognise that for some charities, a long-term engagement approach might not go far enough fast enough, and that their journey to net zero may require divestment.
To address this, we manage a range of sustainable strategies which embrace stricter carbon standards. Our suite of sustainable strategies aims to encourage a better allocation of capital that leads to the generation of sustainable risk-adjusted returns for clients alongside improved long-term global outcomes for the society and the environment. In doing so, they seek to avoid companies involved in areas of high social cost, environmental degradation, or violators of the UN Global Compact Principles.
We also offer exclusions and screening for our charity clients, and our active management approach means that we are able to be dynamic and flexible, in order to support clients on their own journeys.
How can charities navigate their own path to net zero and beyond?
The urgency of the issue is evident, with 76% of charities concerned about the push for net zero, according to our survey. Nevertheless, each net-zero path is likely to differ. Charities will need to think about their own objectives, and decide the best approach for themselves, which could involve setting out their targets in their investment policy statement.
The net-zero challenge has also highlighted other areas of focus for investors, such as biodiversity. Nature preservation and net zero are two sides of the same coin: protecting biodiversity in tandem with climate change is imperative, given that healthy ecosystems can help reduce the extent of climate change and better cope with its impacts. Biodiversity is likely to be the next issue that organisations and institutions will need to address, and is one that we are already looking at closely.
Hilary Meades is head of charity investment at Newton Investment Management
Four decades of global investment experience, with particular expertise in active equities, income, absolute-return, multi-asset solutions, thematic and sustainable strategies
Clients include charities, pension funds, corporations and, via our parent company BNY Mellon, individuals
Our investment platform harnesses both fundamental and quantitative analysis, which includes ESG and thematic research
What we do
At Newton Investment Management, our purpose is to help our charity clients fulfil theirs. We are a trusted long-term partner to charities, and have a strong track record of supporting them in achieving their goals by taking an active, multidimensional and engaged investment approach. We manage a range of strategies for charities, including charity-focused pooled funds, sustainable funds, and segregated portfolios. We invest in a way that seeks to deliver attractive outcomes to our clients, and helps foster a healthy and vibrant world for all. And we do not stand still. Innovation is a fundamental part of our service to charities.
Hilary Meades is head of charity investment for Newton Investment Management