Stockholm (NordSIP) – On June 16th, NordSIP joined Andrew Howard, Head of Sustainable Research at Schroders, and Peter Sandahl, Head of Sustainability at Nordea Life and Pensions, to discuss the goals of the Net Zero Asset Owners Alliance and the challenges ahead.
Allies for Zero Net Carbon Emissions
The Net-Zero Asset Owner Alliance is an UN-backed initiative of institutional investors committed to the 1.5°C Paris Climate scenario and to achieving zero net carbon emissions by 2050. Convened in 2019 by the UN Environment Programme’s Finance Initiative and the Principles for Responsible Investment, the members of the Alliance represent US$ 4.6 trillion in assets under management. Its membership includes prominent Nordic institutional investors such as Alecta, AMF, Folksam Group, Nordea Life and Pension, PensionDanmark and Storebrand.
Sandahl acknowledges that membership of the Alliance has added value to the work of Nordea Life and Pensions. It has helped the asset owner to learn from its allies and to align its work with industry best practices. “Our understanding of this topic has improved dramatically, which has been useful in terms of climate risk management and integrating environmental concerns into our investment process.”
Progression is Better Than Perfection
To assess the progress and implications of the steps being taken along this journey, Schroders’ Climate Progress Dashboard monitors 12 indicators to show the progress being made towards decarbonising the global economy. “It’s a long journey. We are undoing the effects of two centuries of industrialisation. At the moment we are sadly closer to a 4C scenario than a 2C scenario,” Howard warns.
Data quality plays a fundamental role in this assessment and the recent increase in quality and quantity has been crucial to calculations Scope 3 carbon emissions focusing on the carbon footprint contributions of the supply chain and the product’s consumption. “We have more information to calibrate this analysis now than before. It’s not perfect, but it’s much better.”
However, the perfect can be the enemy of the good, according to Howard. “Investors should begin with the problem that we are trying before seeking the data needed to answer this problem, rather than fixating on finding the best data and trying to figure out what they can do with it.”
“Progression is better than perfection. Scope 3 data is imperfect, but through approximations, we can understand enough about what is going on,” Sandahl agrees.
Tailoring Solutions From Common Principles
Once investors have been able to separate leaders from laggards, they need to decide how to approach the latter. The issue is often misleadingly framed as a choice between ethical ESG exclusions and engagement, according to Sandahl. “In the Nordics, you cannot claim to be sustainable investors without exclusions. But what seems like a green solution does not necessarily make the world green.”
Howard echoes this view. “There is no single answer to the question. It depends on the needs and capacity of different clients to engage with investments. Given the investment capacities of large oil companies like Shell, engagement should not be taken off the table. We have a vital role to play as investors to hold those companies to account and drive change.”
“I believe that this is a view that represents the Alliance,” Sandahl adds. “We are not forcing it onto everyone, but we do need a combination of both.”
On the topic of regulation, Sandahl and Howard agreed that the tsunami of regulation on its way from the corridors of the European Union will be a force for positive change. “I welcome the new regulatory landscape. There will be convergence over the next couple of years that will lead to improved reporting and more transparency.” Howard agrees but cautions to keep an eye on regulatory overreach and the dangers it may present. “The direction of travel is going to be very positive. However, we will have to keep a close eye on regulations like the taxonomy to avoid overly narrow definitions that leave too much capital chasing after too few investment opportunities.”
You may now watch the replay below and consult the slides here>