Sustainable Investing

A fair and inclusive pathway to net zero

Ninety One’s sustainability agenda, including its net-zero commitment, is driven by a commitment to achieving real-world change.

Jun 30, 2021

3 minutes

Our African roots have been a big influence on how Ninety One approaches sustainability. Several major sustainability challenges are amplified in Africa, including poverty, lack of access to education and inadequate infrastructure. We are reminded daily that meaningful action is needed now.

In our home market, we have also seen at first-hand that capital can make a difference when directed towards achieving real-world impact. Ninety One manages various investments aimed at improving infrastructure in sub-Saharan Africa. Projects include one that will provide Rwanda’s capital city with 40 million litres of water per day, making a meaningful contribution to the country’s drive to provide clean water to its entire population.

These experiences have framed our approach to the net-zero challenge. With an overriding focus on achieving real-world change, Ninety One will join the Net Zero Asset Managers Initiative with three key items on our agenda.

Action 1: Setting targets that drive real-world action

We all know the world needs to reduce emissions. However, targeting a reduction in portfolio carbon intensity (CO2 emissions per dollar of sales), a common industry approach, does not necessarily drive the real economy towards net zero. For example, one could reduce the carbon-intensity of a global equity index by 7% simply by doubling the weighting in big-tech stocks (which are, by nature, low Scope 1 & 2 carbon – i.e., direct emissions and emissions from purchased energy). Does that decarbonise the economy, or merely reallocate assets? Absent other measures and analysis, including of how the companies in a portfolio plan to achieve the clean-energy transition, we think excessive focus on carbon intensity could result in investors ‘cleaning’ their portfolios but not the atmosphere.

Our commitment is to seek better ways to measure a portfolio’s alignment with the net-zero transition, in order to incentivise real-world decarbonisation. We advocate disclosing how a portfolio is reducing its carbon footprint (effectively providing a ‘carbon-performance attribution’), and setting targets that encourage allocations to the countries and companies working the hardest to tackle climate risks through robust transition plans and by providing real-world climate solutions.

Action 2: The emerging market challenge

We believe the world needs an inclusive transition plan that works for everyone. As the developing world is driving emissions growth, a net-zero strategy that excludes it could well result in no net zero at all. Only 20% of clean-energy investment is going to emerging markets, where the need is the greatest. This needs to change – the race to net zero is a race against time, not between countries. Also, we think the enormous opportunities to improve lives that the net-zero transition presents should be shared among us all.

Our commitment is to work for a transition that includes everyone, and to advocate for the carbon-intensive emerging economies to be given the time and resources they need to adjust.

Action 3: Using our presence in Africa

South Africa’s energy grid is four times as emissions-intensive as the UK grid. That increases the emissions profile of Ninety One’s assets under management, since some of the portfolios we manage for our clients focus on South African companies. This presents an opportunity (and a responsibility) for the capital we manage to contribute to decarbonizing South Africa’s energy sector and other high-emitting companies in the country. Our work on this front includes advocacy, direct engagement and innovation in investments, particularly in the credit asset class.

We commit to developing our expertise in supporting transition plans in high-emitting sectors and businesses in South Africa, and to using this knowledge to assist heavy emitters in other emerging markets to develop workable transition strategies.

With a net-zero strategy built around these three pledges, we hope to play our part in advancing the transition to carbon neutrality. Net zero will be a long and difficult journey for us all. But if we set about it in the right way, we can ensure it is fair, inclusive and ultimately successful.

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