Navigating net-zero investing benchmarks, incentives and time horizons

MANY asset owners are adopting net-zero objectives to manage their investment exposure to climate change risk. A net-zero investment objective aims to attain net-zero portfolio greenhouse gas (GHG) emissions by 2050, in line with the global goal of zero growth in real-world GHG emissions set by the Paris Agreement in 2015.

Strategies to achieve a net-zero investment objective typically include reducing portfolio emissions to lower transition risk, investing in climate change solutions to capitalise on macro trend opportunities, and using engagement and advocacy to reduce systemic risks.

Adding a net-zero objective to a traditional investment programme presents challenges for asset owners because they must grapple with balancing a net-zero objective with fiduciary duty responsibilities, setting climate risk policy, and how to benchmark net-zero investment strategies, incentivise managers, and determine performance horizons. In this article, we explore these issues and propose solutions.