Climate change is a priority issue for Ninety One, informing our approach to investing as well as the way we operate our business.
Ninety One formally pledged its support for the Task Force on Climate-related Financial Disclosures (TCFD) in September 2018. We publish an annual TCFD Report, which sets out how we disclose our exposure to and management of climate risk, using the TCFD framework. Read the latest report here.
We joined the Net Zero Asset Managers Initiative in 2021, acknowledging the urgent need to accelerate the transition towards global net zero emissions and for asset managers to play our part to help deliver the goals of the Paris Agreement and ensure a just transition. In joining, we committed to work for a transition for the whole world, including emerging markets.
Debating net zero for emerging markets, portfolio vs real world carbon and the unintended consequences of carbon intensity measures.
By joining the Net Zero Asset Managers Initiative, we seek to contribute to the quest to help curtail disruptive climate change and ensure the long-term sustainability of our planet.
This commitment complements 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.
In joining the Net Zero Asset Managers Initiative, we have also committed ourselves to a special task. We believe 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 not result in net zero at all. So, to us, the mission 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 for low-emitting portfolios, we intend to do more than reduce carbon 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 ̒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 economy. It would also 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 should be an expression of our purpose: investing for a better tomorrow. We aim to do this within our three-dimensional sustainability framework: Invest, Advocate, Inhabit.