Asset Owners Globally Coalesce Around Net Zero

August 9, 2022 — Boston

Asset owners and managers turn net-zero pledges into action, joining forces to ramp up efforts to mitigate climate change, prioritizing standards for risk reporting, according to new Cerulli white paper

Globally, institutional asset owners are pledging formal commitment to net zero—43% in Europe, 44% in Asia, and 32% in U.S. As they implement measures to achieve this commitment, they will increasingly evaluate portfolio-level metrics, according to a new white paper, Net-Zero Investment, issued by Cerulli Associates.

Institutions’ reporting requirements have become more stringent across Europe, Asia, and the U.S. as they aim to ensure they have sufficient data to report to their stakeholders. In Europe, approximately 80% of institutional investors request data on their exposure to energy transition risks and physical climate risks and 61% request the carbon footprint of their portfolios. Similarly, U.S.-based asset owners increasingly plan to embed climate risk into mandates—38% of firms already require climate risk reporting from managers and 34% plan to within two years. In Asia, portfolio-level exposure to climate risks (69%), security-level exposure to climate risk (74%), and scenario testing metrics for climate change (57%) will be most requested by asset owners in the next two years.

Over the next 12 to 24 months, asset managers should anticipate a strong uptick in interest in measuring portfolio temperature. According to the research, managers’ ability to do so currently varies by region. Measuring the carbon footprint of the portfolio, exposure to energy transition, and physical climate risks, as well as alignment to a two-degree scenario are consistent categories managers across Europe and the U.S. are evaluating.

  • 88% of managers in Europe can report on the carbon footprint of their investment portfolio; 79% in the U.S. are able to report on carbon footprint of their investment portfolio
  • 29% of managers can report on exposure to energy transition risks and physical climate risks; 32% in the U.S. are able to report on this measure
  • 29% of managers in Europe can report on a two-degree scenario; 18% in the U.S are able to report on this category

Firm-specific risk monitoring, allocations to sustainable investments, and decarbonization strategies have become increasingly sophisticated and more pointed as better, more granular data is collected. However, sourcing data remains an obstacle. “Asset managers continue to face challenges and are seeking better quality data,” according to David Fletcher, senior editor. Managers, especially those in Europe, that can quickly solve such data and reporting challenges will be well positioned. “We believe that institutional investors in this region will be looking to partner with asset managers that offer strong expertise in climate risk assessment and reporting. Such tools will be highly sought after by European institutional investors that are increasingly focused on scenario analysis and stress testing,” he concludes.

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Note to editors

These findings and more are from Cerulli's white paper: Net-Zero Investment.

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