What does delivering a net zero investment portfolio actually entail?

Perils of merging science, social policy and company interests

How difficult is it to achieve a net zero investment portfolio? On the face of it, the trend is favourable.

Snowball effect

Rick Stathers, senior global responsible investment analyst and climate specialist at Aviva Investors, similarly argues those developing pathways to net zero need to look at a range of issues rather than boil it down to a single figure.

While long-term net zero targets exist, it is in interim targets that are criticial to consider, especially for high emitting sectors.

Stathers also believes that there will be increased focus on negative emissions technologies as part of net zero transition plans. For example, Shell is seeking to use so called 'Nature Based Solutions' as part of its Net Zero policy.

But critics warn there is a limit to the amount of suitable landmass available for such solutions. As such as more investors align with net zero targets, asset owners will increasingly ask for information on intermediate targets and the level of reliance on negative emissions, which should result in more pressure for firms to come forward with credible and ambitious plans.

Other factors will also help drive momentum in support of the net zero transition. The US is starting to engage with the climate agenda again after four years of lost time. The EU is talking about a carbon tax border mechanism. China has finally launched its national emission trading scheme. The long-term investment signals are clear.

There could be a general underestimation of the snowball effect that is building, Stathers suggests.

"It is not just about investors saying they want a portfolio to be Net Zero aligned, but it is also about, for example, stress testing - the cost of capital may increasingly reflect the cost of climate change - and there might be future technology that can capture carbon like trees," he predicts.

"Now when we talk, everybody wants to be involved in the discussion, not just corporate social responsibility people any more. It is embedding as a topic across organisational structures in a way not seen before."

There are multiple pathways available for the global investors now committed to building net zero portfolios. But the good news is they seem intent on exploring them.

Additional reporting by James Murray. 

This article first appeared on our sister title BusinessGreen.

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