The evolution of net zero investing will be uneven and challenge investors as organisations, according to a new paper. Published by CFA Institute Research and Policy Center, ‘Net Zero in the balance’ is a guide aiming to help investment industry leaders with their net zero ambitions.
One of its emphases is on the operational features of net zero investing, saying that net zero investment efforts will place a burden on organisational resourcing and a dependence on transformational leadership.
“All investors should keep a weather eye on the developing nature of net zero investing,” the paper stated, “because the arc of progress is unlikely to be smooth and organisational resilience will be tested”.
Authored by Roger Urwin, co-founder of the Thinking Ahead Institute, the paper sets out recommendations for investment organisations including building deeper organisation beliefs about climate using systems-thinking, developing their collaborative network to support faster learning and more coordinated efforts, and attracting talent from diverse fields to build climate investing capability.
“Enhanced organisational capabilities will feature in the strategy,” wrote Urwin. “Fresh talent and new professional learnings will be needed. There will be demands to upskill. Human values will come to the fore.”
“There may be reasons to accelerate or decelerate the investor’s path toward achieving net zero emissions depending on the energy transition pathway”
On a more practical note, Urwin also declared balanced scorecards as a critical tool for net zero investing, able to consolidate multiple measurements of progress towards goals.
These and other useful tools, such as total portfolio thinking, could support investors in their efforts to meet net zero goals while optimising the risk-adjusted returns.
The latter must not be compromised if an investor wants to be effective with net zero investing, according to the CFA Institute paper.
“Asset owners in most cases need to develop a strategy that achieves the dual mandate of reaching net zero goals without sacrificing returns,” wrote Urwin.
“This strategy should be validated both beforehand through investment beliefs and afterward through the results and outcomes.”
Investors must remain flexible, however, Urwin appeared to say, as the renewable energy transition evolves.
“There may be reasons to accelerate or decelerate the investor’s path toward achieving net zero emissions depending on the energy transition pathway,” the paper stated.
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