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Race to net zero

Seeing the world in an investment portfolio

To help investors navigate the portfolio decarbonisation process, our short guides explore the options available, as well as the related advantages and challenges along the way.

Transitioning towards a more climate-aware investing portfolio

Climate risk is fiduciary risk. As the environmental consequences to the world economy have become more salient, the investment research and decision-making process can no longer ignore the impact of the climate crisis. Consistent with the goals of the Paris Agreement to keep global average temperature rises to well below 2.0°C, more investors are committing to transition their investment portfolios. For example, the Net-Zero Asset Owner Alliance had 74 members with $10.6 trillion in assets under management as of July 2022, pledging to a net zero pathway by 2050 or earlier. Even if investors do not embark on a net zero trajectory, many are doing more to reduce the carbon footprint of their portfolios while maintaining similar risk-return characteristics.

Yet climate-aware investing can be highly uncertain, with trade-offs between reducing the portfolio’s emissions and the emissions of the real economy. Many find it difficult to grapple with questions such as the following:

  • What level of climate ambition is appropriate for the organisation?
  • How can a portfolio carbon footprint be measured?
  • What investing strategies will help to reach decarbonisation ambitions?
  • How can climate investing decisions be more forward-looking when much of the data and analytics are based on historical trends?

Introducing our series on climate-aware investing

To help manage the portfolio decarbonisation process, we provide short guides for investors to begin mapping and implementing a portfolio decarbonisation pathway in “Race to net zero: Setting climate-aware ambitions” and “Race to net zero: Implementing a portfolio decarbonisation pathway”, respectively. In the coming months, we will also delve deeper into specific asset classes and share more of our views around climate-aware investing during other stages of the journey.

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Source: Fidelity International, September 2022.

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