For super funds and their advisers

Investment consultants unite on net zero

•3-Tim-Conly

Investment consultants like JANA, Frontier, and Willis Towers Watson, are banding together to “drive real change” by confronting the “daunting” task of accomplishing a net zero transition.

The Net Zero Investment Consultants Initiative (NZICI) will see consultants embed advice on the transition to net zero into their advisory work and support clients on developing policies that align their portfolios to a net zero pathway.

“We wanted to align our views and collaborate with some of our traditional competitors from a global perspective to come together and recognise this system wide change that’s happening,” said Tim Conly, head of responsible investing at JANA. “We’re in the business of helping investors navigate long-term trends.”

“… Clearly there’s a lot of risks associated with this transition depending on what scenario plays out, and we think that only some of the risk can be mitigated by isolated, typical investment decisions – changing a manager, changing asset allocation. They’ll only go so far.”

Conly says that discussions about the initiative started with overseas consultants, which had already formed working groups on sustainability in late 2020, and that the upcoming United Nations Climate Change Conference (COP26) was one of the catalysts. Conly notes that it’s not “a night and day change” – JANA and its competitors have incorporating the potential impacts of climate change into their advice for some time – but it’s about “putting a stake in the ground that points to the direction (they) think the world is moving in.”

“Net zero will become far more visible to our clients when we’re advising them,” Conly says. “It doesn’t force things on our clients or go against fiduciary duty or anything like that, but it’s about being really clear about how climate change and net zero specifically will influence investments from a positive and negative perspective.”

The NZICI encompasses 12 firms – Barnett Waddingham, bfinance, Cambridge Associates, Cardano, Frontier, Hymans Robertson, JANA, LCP, Meketa, Redington, Willis Towers Watson and Wilshire – advising institutional investors on approximately US$10 trillion in assets.

“The global transition to a net zero economy means asset owners have to develop their understanding of climate risks, think about changing pathways for their assets and exercise their stewardship rights,” said Luba Nikulina, global head of research at Willis Towers Watson and co-chair of the Investment Consultants Sustainability Working Group – UK. “Investment consultants play a vital role in supporting asset owners on this journey and helping them increase their level of climate ambition. I am delighted to work together with other NZICI members to make this industry wide transition quickly, effectively and sustainably.”

The two headline actions – of nine laid out in the commitment –  will be the integration of advice on net zero into all investment consulting services “as soon as practically possible” and supporting efforts to decarbonise the economy by helping clients prioritise emissions reductions. Conly says that JANA intends to roll out explicit net zero transition scenarios for macro stress testing that will sit alongside current scenarios based on two- to four-degree global temperature rises, an initiative it was working on prior to the launch of the NZICI.

“Together we have the power to make a real difference for millions of people,” Conly says. “Joining this type of commitment brings that to life – it’s not about divesting half the market or giving up returns, it’s about realising that we need to drive real change to get better outcomes for everyone, and we think this commitment will help that cause.”

Other actions included in the NZICI include the setting of emissions reduction targets across the business in line with 1.5°C scenarios; working collaboratively to create net zero methodologies where they do not already exist; engaging independently or as a group with regulators to facilitate the transition to net zero; and reporting progress against the commitments in the public domain.

“Collective action is vital to meet the objectives of the Paris Agreement. By joining the NZICI, Frontier is proudly and publicly committing to develop capabilities to support our clients align their investment strategies to a 1.5C degree future, while also achieving their performance objectives,” said Andrew Polson, Frontier CEO.

“Accomplishing net zero is daunting but vital and we are determined to play our part in contributing to reducing real world emissions alongside like-minded investment consultants and asset owners.”

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