A net zero roadmap: Guiding portfolio companies

The era of sustainable investing has dawned, and with it comes a new level of responsibility for asset managers. Not only are we tasked with achieving favourable returns, but we also need to be stewards of sustainable business practices. One of the key objectives is to help portfolio companies progress towards achieving net zero emissions, a critical factor in combating the climate crisis.

With COP28 highlighting the climate crisis’ impact on health, it’s an opportune time for asset managers to take the lead and guide portfolio companies to a sustainable future. Here are some practical ways to facilitate this transition.

  1. Understand and communicate the importance of net zero

We must start with the basics. Understanding the climate crisis is broader than knowing the environmental consequences. It’s essential to understand the implications on public health as well. Air pollution, heat waves, increased disease transmission, and food and water insecurity are just some health risks associated with climate change. Convey this message to your portfolio companies and ensure they understand that moving towards net zero is not just good for the planet but also for people’s health and, consequently, for business and investor sentiment.

  1. Integrate ESG factors

Environmental, Social, and Governance (ESG) factors should be an integral part of the investment decision-making process. Engage with portfolio companies to encourage them to incorporate ESG considerations into their strategies. Assessing carbon footprint, setting emission reduction targets, and implementing effective governance structures to oversee these initiatives are a part of this.

  1. Set clear and measurable goals

Work collaboratively with portfolio companies to set clear, ambitious, achievable goals for reducing emissions. These should be in line with the latest scientific findings and global policy frameworks, such as the Paris Agreement, or the Greenhouse Gas (GHG) Protocol – the most commonly used standard for corporate accounting and the reporting of GHG emissions. Goals should also be time-bound with regular check-ins to assess progress.

  1. Provide resources and support

Transitioning to a net zero business model may require significant resources and knowledge. As an asset manager, you can provide support in various forms, such as connecting companies with relevant experts and facilitating knowledge sharing between portfolio companies.

  1. Foster transparency and accountability

Transparency and accountability are vital components of the transition to net zero. Encourage portfolio companies to disclose their carbon emissions and reduction plans. This could be done through annual sustainability reports or participation in initiatives such as the Task Force on Climate-related Financial Disclosures (TCFD).

  1. Advocate for policy change

Asset managers can use their influence to advocate for policy changes that support net zero transitions. This can include supporting climate-related shareholder resolutions or engaging with regulators to advocate for policies that incentivise sustainable business practices.

  1. Celebrate success and encourage continuous improvement

Recognise and reward portfolio companies that make significant strides towards their net zero targets. This encourages them to continue their efforts and inspires other companies in your portfolio to take similar actions.

As asset managers, we have the power and responsibility to shape a sustainable future. Engaging portfolio companies in the journey towards net zero is not just a moral obligation in the face of the climate crisis, but it also makes sound business sense. Sustainable companies are better positioned to thrive in the long run, and investors increasingly recognise this. So let’s seize this opportunity to make a difference, for our planet, for public health, and for our portfolios.

SI Engage will streamline and simplify engagements across your portfolio, enabling you to plan, track progress and report with ease. Book your demo to find out more!

 

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