Partner and Head of Sustainability and Strategy, Ambienta SGR
The role of asset managers is crucial in tackling the climate crisis. The waves of commitments are supportive but risks loom ahead.
Engagement or disengagement?
Recently, an increasing number of managers have committed to decarbonise their portfolio in line with Paris Agreement goals. The Net Zero Asset Managers initiative groups these managers and includes industry giants such as BlackRock or HSBC.
This commitment is a very powerful one. Nonetheless, some voices are starting to highlight the risk of this turning into a wave of disengagement rather than active contribution to decarbonisation. This fear is credible and merits attention.
Indeed, a huge amount of capital will be needed to turn the world economy into a net zero economy. A large amount is required in capital investment across heavy industries that need the most new money to decarbonise, as soon as possible.
Unfortunately, while investing in companies selling solutions for decarbonisation can unlock very attractive returns due to the growing market opportunity, installing these technologies in an industrial plant or a building does not always offers compelling financial returns. For instance, the payback period of a rooftop PV is usually longer than typical investments.
The payback period of a rooftop PV is usually longer than typical investments.
Balance of economic targets and decarbonisation
Asset managers might face the uncomfortable reality that a return maximisation objective will conflict with a decarbonisation objective. An easy way to achieve both at portfolio level would be to divest heavy industries and replace them with less carbon intense ones. Then buyers of the assets might have capital pools less prone to decarbonisation goals, which in turn will slow down the overall transition endeavour.
It is crucial that market participants and international initiatives continue to highlight the importance of engagement to achieve decarbonisation targets, in particular across industries that have no large viable alternatives as steel or cement. Actual emission reductions should be favoured over capital allocation decisions that simply move the issue somewhere else.
Ambienta has always taken the standpoint to engage. However, a risk of industry disengagement lies ahead, as a result of certain decarbonisation commitments. We all should do our part to make sure this risk does not turn into a reality.