Net-zero investing and its impact on a 60-40 allocation

GLOBAL warming and the net-zero transition have far-reaching implications for investors. Embracing a net-zero path will impact investors’ asset allocation in two ways. Strategic asset allocation decisions will need to consider how the transition will impact economic and financial variables, and thereby the returns investors can expect.

Investors can embrace the net-zero path within their equity and corporate bond allocations to ensure their portfolios are net-zero aligned. In doing so, investors will have to reassess traditional asset allocation approaches, so as to reflect the fundamental shifts in the world’s economy caused by climate change.

For climate targets to be realised, the asset allocation decision can be implemented in different ways. These include using a passive climate-aligned benchmark, embracing a net-zero active cross-asset allocation, or using an active cross-asset strategy that incorporates specific targets for green investments.