As COP 26 begins, almost a quarter of the largest asset managers has set net zero targets for their investments and more ambitious targets are planned, finds NN Investment Partners research.
Natural Language Processing (NLP) analysis of more than 10,000 responsible investing publications shows how climate has leapt up the agenda for the world’s 500 largest asset managers with double the amount of responsible investing publications and 150,000 paragraphs that discuss environmental, social and government (ESG) topics.
Sebastiaan Reinders, Head of Investment Science at NN Investment Partners comments: “Asset managers have high expectations for the outcome of the climate change conference in Glasgow. The 150,000 paragraphs contain diverse but optimistic views on the expected real world outcomes from the COP26. The research shows professional investors expect coordinated, meaningful and actionable agreements on climate policy will be reached this time.”
Ambitious climate goals
Asset managers mentioned CO2 emissions in 33% of their ESG-related publications this year compared to 6% in 2016. They mostly focus on setting mid-term goals for the proportion of their investments to be managed in line with a net zero policy, according to the text analysis. They often mention 2025 and 2030 as target dates. Most asset managers say they are working on more detailed net zero goals for their investments. The research found multiple mentions of “roadmap” and “framework” for net zero emissions in their publications.
Combining climate goals and post-Covid recovery plans is often cited as an opportunity to “build back better”. They expect an improved framework for financial and technical assistance to help lower income countries contribute to climate goals.
Not only are asset managers expecting to become more detailed in how they contribute to a net zero world, countries will have to become more detailed in how they plan to achieve carbon neutrality, according to the analysis of asset managers’ publications. Roadmaps per sector or industry with clear (interim) goals are commonly cited ways to achieve this.
Growth in ‘green’ securities
Asset managers’ responsible investing publications show a broad consensus on the growth of green securities. A rising supply of new green securities may drive down the price of existing similar securities, such as green bonds and impact equities. However, asset managers expect that the new supply will be absorbed by increasing overall demand as attention on climate change increases.
NN IP currently expects green bond issuance to jump 25% in 2022 to around EUR 500 billion, and the total could be even higher depending on how fast the EU looks to issue more green bonds. Social bonds and sustainability bonds also are expected to see significant increases in issuance next year.
COP 26 creates a shift in sentiment
Many asset managers have already started to announce net zero emission targets. This will accelerate around COP 26. Investors are also increasingly focused on evaluating their portfolios from a climate risk perspective. One result of COP26 could very well be a permanent shift in sentiment towards greenhouse gas intensive sectors.
Adrie Heinsbroek, Chief Sustainability Officer at NN Investment Partner comments: “We hope COP26 will lead to breakthroughs and new commitments on finance goals on climate, higher ambitions from major economies in line with the Paris Agreement and stronger contributions of countries that lag behind. Whatever the outcome, we will remain steadfast in our climate commitments and continue to team up with other market participants.”
“We have a key role to play in financing the transition to a low carbon economy and in combatting global warming. We will shortly announce how much of our assets under management will be aligned with the goal of achieving net zero emissions by 2050 as part of the Net Zero Asset Manager Initiative.”