Our commitment to net zero

The Net Zero Asset Managers Initiative and our approach to net zero

By joining the Net Zero Asset Managers Initiative, we seek to contribute to efforts to avoid disruptive climate change and ensure the long-term sustainability of our investments and our planet.

This commitment is based on our support for the Paris Agreement and global efforts to limit warming to 1.5°C. We are also aligned with the 17 specific goals in the United Nations 2030 Agenda for Sustainable Development. For us, this is not box-ticking or virtue signalling. This is a commitment to what it will take to invest profitably over the long term.

In joining the Net Zero Asset Managers Initiative, we also emphasise that the world needs an inclusive transition plan that works for all its 7.9 billion people. A drive to net zero that excludes, intentionally or otherwise, any place or enterprise, could result in no transition at all. So, to us, the necessity to reduce carbon must include the entire world.

The carbon-intensive emerging market economies in particular need time, encouragement and resources to adjust. These economies, after all, are not responsible for the bulk of emissions to date. So, at Ninety One, our task is to make the case not only for a transition, but for a just transition.

In our drive to promote emissions reductions, we intend to do more than reduce our own financed emissions by simply constructing portfolios that exclude high-emitting countries and companies. We believe that if we mechanistically apply an exclusionary process to achieve net-zero targets, we would likely create portfolios concentrated in developed markets and asset-light industries, without the transition focus on the rest. As a result, we might end up with places and sectors abandoned to their own devices.

Instead, we seek to differentiate between the reduction of so-called portfolio carbon and the reduction of carbon emissions in the real world. Currently, companies are incentivised to divest carbon-heavy assets to report declining carbon intensity. These carbon-heavy businesses continue to operate, but often outside the public eye. If excluded, they will increasingly operate outside the scrutiny of regulated public markets and to the detriment of society. At the same time, countries are incentivised to ‘offshore’ carbon emissions to other countries, which does not change domestic consumption patterns.

As currently measured, the carbon footprint of a portfolio depends far more on sector and regional allocations than on the progress of the underlying companies. A narrow focus on lowering reported carbon intensity is therefore likely to divert capital out of the developing world. This could deny large parts of the world the capital needed to build a cleaner, greener -- and, vitally for investors -- prosperous economy. Such a focus would deny developed-market savers access to the dynamism of emerging markets and the associated potential return opportunity. In the past 15 years, exposure to fast-growing emerging markets has provided return and diversification benefits to developed-market savers.

At Ninety One, we believe in active engagement and encouragement towards a transition. As a paper from Imperial College noted, “Not all firms can go green, but they can all get engaged in transition”. Instead of risking a disorderly exit from carbon-intensive economies, sectors and companies with a high carbon footprint, we will, where we can exert influence, actively allocate to companies and countries that can be encouraged to deliver on transition plans.

Our approach as an investor committed to serving our clients’ long-term goals is therefore an expression of our purpose: investing for a better tomorrow. We aim to do this within our three-dimensional sustainability framework: Invest, Advocate, Inhabit.