Net zero portfolios are not the same thing as achieving net zero in the real economy

Fast view

• It’s not enough to simply say carbon-intensity is an inadequate measure of net-zero transition alignment. Viable alternative metrics need to be developed.
• It may be three years before such metrics are available industry-wide. In the meantime, some Ninety One teams are assessing transition strategies by asking three key questions of companies:
  • Is your carbon-reduction target ambitious enough?
  • Has it been costed for?
  • Is it possible to measure progress on an annual basis – not necessarily in terms of the carbon footprint, but perhaps in terms of capital expenditure on the transition strategy?
• Ninety One’s Sovereign Fixed Income team has developed a Net Zero Sovereign Index to define a fair transition pathway for individual countries. The index takes into account each country’s starting position, including its level of wealth, and ability to transition.
• The index allows investors to measure a country’s progress over time in relation to the fair pathway. The aim is to give the investment team and clients a means of monitoring a country’s net zero policies and actions, and whether it is on the right track.