PERSPECTIVE3-5 min to read

True engagement will move the dial on climate targets

A growing number of financial institutions have made, or are planning, commitments to reduce emissions. How they reach that destination is key to the value those commitments will create.

26/03/2023
Distant factory in landscape

Authors

Andy Howard
Global Head of Sustainable Investment

Almost 90% of global emissions come from countries that have committed to reaching net zero in the next few decades. Global policymakers are taking steps to meet that goal. While progress toward that destination is neither smooth nor linear, and tougher policies will be needed, we believe a decarbonisation journey lies ahead. Business models will need to respond and react to that, and the companies that do so will be stronger.

As active managers we are participants in that transition and have choices over how we reach the net zero destination. There are many routes to decarbonise portfolios; the path we select will determine whether it creates or constrains the investment returns we deliver to our clients.

We have established a climate change strategy that we expect will allow the investments we manage to benefit from the value that can be unlocked as companies cut emissions. Instead of avoiding companies with higher emissions, we identify them and encourage them to establish and deliver their own transition plans.

Our own analysis has shown that companies able to reduce their emissions quicker than peers have typically outperformed in recent years. As policy measures intensify to encourage decarbonisation and penalise emissions, we expect that performance tailwind to continue.

To benefit from that, during 2022, we embarked on our largest engagement exercise yet. We engaged over 700 companies, responsible for around half of the financed emissions of the asset classes in scope of our targets.

This is a whole-firm effort, with analysts and fund managers across Schroders’ global offices speaking to hundreds of companies to explain our views and goals. Our engagement has proven successful; the companies we engaged on climate since 2021 have been almost twice as likely to set a new below 2°C target than those we did not.

Beyond driving transition in the investments we manage, we are also seeking ways for our clients to invest in portfolios focused on assets with low carbon exposures, which are transitioning quickly or which provide solutions to the climate challenge. That spectrum of investment products provides a strong platform to support our clients on their own journeys and with their own investment goals.

Underpinning investment decisions, engagement and new products, we continue to invest heavily in developing proprietary analysis and tools that help our analysts and fund managers to integrate climate factors into investment decisions. That analysis also benefits significantly from their insights and input.

Taken together, our group portfolio targets are a natural outcome of an investment approach that focuses on delivering value through transition, rather than an end in themselves.

The same perspectives, commitments and action applies to the way we manage our own business and is reflected in our operating and supply chain emissions reduction programmes and targets.

As an active investment manager, climate risk is an investment problem that we are in a strong position to help solve for our clients, using our expertise in investment as well as our influence on the companies in which we invest. By pursuing our main purpose – excellent investment performance for our clients – we are accelerating positive change for people and planet.

Schroders' full Climate Report 2022: funding the future - investing in climate action can be found here.

DISCLAIMER

INVESTMENT IN MUTUAL FUND INVOLVES RISK. PRIOR TO DECIDING TO INVEST, PROSPECTIVE INVESTORS MUST READ AND UNDERSTAND THE FUND PROSPECTUS. PAST PERFORMANCE DOES NOT GUARANTEE / INDICATE FUTURE PERFORMANCE.

The views and opinions contained herein are those of the author(s) on this page and are not necessarily represent views expressed or reflected in other Schroders’ communications, strategies or products. This material is intended to be for information purposes only and is not intended as promotional material in any respector offer or solicitation for the purchase or sale of any financial instrument. This material is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations [and also may not be circulated, published, reproduced or distributed to any other person without our prior written consent]. Reliance should not be placed on the views and information in this material when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results. The value of an investment can goes down as well as up and is not guaranteed. All investments involve risks including the risk of possible loss of principal. Some information quoted herein was obtained from external sources we consider to be reliable. Information herein is believed to be reliable, but Schroders does not warrant its completeness or accuracy. No responsibility both directly and indirectly can be accepted for errors of fact obtained from third parties or negligence of or loss resulting from the use of this material. The data disclosed in this material may change according to market conditions. If any regions/sectors are shown in this material, such data is for illustrative purposes only and should not be viewed as a recommendation to buy/sell. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know and include some forecasted views. However, there is no guarantee that any forecasts or opinions disclosed in this material will be realised. These views and opinions herein are our current views and may change without notice. Nevertheless, this disclaimer does not exclude any duty or liability that Schroders has to its customers under the prevailing laws and regulations in the Republic of Indonesia. PT Schroder Investment Management Indonesia, 30th Floor Indonesia Stock Exchange Building Tower 1, Jl. Jend. Sudirman Kav. 52-53, Jakarta 12190, Indonesia. PT Schroder Investment Management Indonesia as an Investment Manager is licensed and supervised by the Indonesian Financial Services Authority (OJK).

Authors

Andy Howard
Global Head of Sustainable Investment

Topics

Follow us

Please ensure you read our legal important information and fraud alert before visiting the rest of our website.

For illustrative purposes only and does not constitute a recommendation to invest in the above-mentioned security / sector / country.

Issued by PT Schroder Investment Management Indonesia, 30th Floor IDX Building Tower 1, Jl Jend Sudirman Kav 52-53, Jakarta 12190, Indonesia. Phone: +62 21 2965 5100

PT Schroder Investment Management Indonesia is licensed and supervised by the Indonesian Financial Service Authority (OJK).

Always be cautious when purchasing investment products. Only subscribe to Schroder Indonesia mutual funds through our distribution partners.  Contact us at +6221 – 2965 5100 and read the fraud alert here.