Planetary Pulse: Targeting effectiveness

Continental Europe highlights

As early adopters of ESG integration, European asset owners’ commitment to climate-change mitigation remains strong, with 53% stating they have at least one-quarter of their AUM invested in portfolios with climate-related instructions or objectives. They are the most likely across regions to agree that financial institutions have a responsibility to provide investment capital to fund the decarbonisation of high emitters (59%).

Currently, a plurality (37%) set climate-related targets at asset-class level, with a view to begin setting these at individual fund level (46%) over the next 12 months, as required by the EU’s Sustainable Finance Disclosure Regulation (SFDR).

The top choice in 2022, climate-related factor integration, is again the most common practice (36%), although this proportion has decreased sharply, year on year (from 54% in 2022). However, there is a disconnect between practices and both decarbonisation and emissions-reduction intentions. Positive screening is viewed as contributing significantly to portfolio decarbonisation (60%) AND real-world emissions reduction (63%) but only 25% of respondents have implemented the practice.

European respondents appear confident of the relevance of their net-zero frameworks (59%), yet a majority (51%) favours a custom/hybrid target-setting framework, which takes elements from various prominent frameworks and adapts them to meet their organisations’ specific requirements.

European respondents have high expectations of transition finance in emerging markets: 67% say the practice contributes to real-world emissions reduction and 54% believe that emerging-market transition finance represents a major commercial opportunity for asset owners.