What key developments are you seeing in relation to net-zero?
The climate crisis is an issue that clearly presents financial risks and opportunities, but also threatens the climatic stability that has enabled modern life as we know it. The sixth Intergovernmental Panel on Climate Change (IPCC) report published in August 2021 provided an update on the latest scientific data regarding climate change. This has been described as a “code red for humanity”, indicating that we have reached a critical point at which urgent reductions in absolute greenhouse-gas emissions are needed to avoid potentially devastating consequences for the health of the planet.
A common set of standards on climate reporting is now emerging, and these provide crucial guidance for asset owners and managers. We recognise that they are in their first iteration; the standards are likely to evolve, requiring an adaptive approach to modelling and reporting of climate-related risks, opportunities and impacts.
We have taken part in the Institutional Investors Group on Climate Change (IIGCC) target-setting groups to ensure that the guidance standards are robust and practical to implement, and have participated in consultations on target setting. We have also conducted meetings with organisations that determine and audit science-based targets, which has assisted us in building our understanding of what the broader industry is doing.
What is Newton’s net-zero approach?
The key principle at the core of Newton’s approach is to manage for real-world change. We will seek to manage for better climate outcomes, even if individual climate measures appear worse in the short term. For instance, investing in and engaging with a heavily emitting utility and encouraging it to adopt a decarbonisation strategy could be more beneficial for the climate than exiting sectors that will continue to be crucial in meeting our energy needs. Our central aim is not to transition our portfolios; we want the real economy to decarbonise.
In addition, we are committed to evolving existing portfolios, and developing new strategies, to manage the long-term risks and opportunities associated with the transition to a low-carbon world. Identifying the winners of this transition will require deep fundamental research to better understand the influence of this transition on business and economic models.
While it is important to actively manage the risk of stranded physical assets and business models, there will also be a myriad of new investment opportunities aligned to delivering the products and services needed to enable a successful energy transition. Our longstanding thematic approach to investing is an important pillar in understanding where in the value chain climate-related opportunities can be best identified.
Finally, our approach will involve the comparison of our portfolios against a hypothetical Paris-aligned global economy. As a first iteration, we will compare our portfolios’ emissions intensity against their respective benchmarks, having applied an annualised reducing-balance percentage reduction of 7% (this percentage is sourced from an emerging consensus from industry reports).
How can Newton help clients on the journey to net-zero?
It is crucial that Newton has a consistent and rigorous core approach to net-zero, but equally that it can adapt to, and work with, individual clients on their own net-zero journeys. We will evolve our approach over time as science, policy responses, management approaches and client needs progress. Active management is a dynamic process where the aim is to navigate client portfolios through an ever-evolving landscape of opportunity and risk.
We have seen that for some clients, their net-zero path has required the need for divestment strategies (from heavily emitting companies, for example), and we have launched a range of sustainable strategies which embrace stricter carbon standards. We will continue to be flexible and work with clients on their journeys.
How do you see your approach evolving?
While we are pleased with our progress thus far, we are still in the process of refining our plans, none of which are completely formalised. It is easy to make commitments, but backing them up over the long term with subject-matter expertise, technology and cultural buy-in are crucial to ensure longevity.
In March 2021, Newton Investment Management Ltd joined the Net Zero Asset Managers initiative, which comprises a group of asset managers who are committed to supporting the goal of net-zero greenhouse-gas emissions by 2050 or sooner. As the transition to a low-carbon world continues to gain traction, we are committed to supporting this goal, and we will continue to adapt to the complex and evolving investment landscape.
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 through active, thematic and engaged investment. 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.
- Four decades of global investment experience, with particular expertise in absolute-return, income-focused, high-conviction and sustainable investing
- Clients include charities, pension funds, corporations and, via our parent company BNY Mellon, individuals
- ESG analysis fully integrated into our core investment process
Rorie Evans is Client Director at Newton Investment Management