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Supporting an Asset Manager's Path to Net Zero

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Supporting an Asset Manager's Path to Net Zero

Highlights

Net Zero commitments are on the rise as countries and organizations pledge to cut emissions. Granular data is needed to truly understand today’s carbon emissions, companies’ challenges and set appropriate longer-term targets accordingly.

Customer Type
A large asset manager

User Base
Chief Sustainability Officer and the sustainability team

Net Zero Asset Owner AllianceMembers: 84
AuM: $11 trillion

Net Zero Asset Manager Initiative
Members: 301

AuM: $59 trillion

Background

The climate crisis's pressing nature has spurred governments, businesses, and investors into action to attain net-zero emissions. Consequently, numerous frameworks and initiatives have emerged to provide guidance to companies and investors transitioning toward a low-carbon economy. These frameworks encompass entities such as the Net Zero Banking Alliance, the OECD Framework for Industry Net-Zero Transition, the IIGCC Paris Aligned Investment Initiative, the Net Zero Asset Owner Alliance, and the Net Zero Asset Manager Initiative.

While asset managers can progress toward Net Zero independently, aligning with established frameworks can accelerate their efforts, enhance their credibility, and provide a structured and well-recognized path toward achieving meaningful sustainability goals. Additionally, it demonstrates a commitment to global climate action and responsible investing, which can be beneficial in the increasingly sustainability-focused financial landscape. However, frameworks designed to assist investors in reaching their Net Zero objectives often require access to data and particular expertise.

In response to this growing demand, a significant asset manager approached S&P Global to support their Net Zero commitments. As a recent member of the Net Zero Asset Owner Alliance, the Chief Sustainability Officer of the asset owner was tasked with guiding the organization in comprehending its existing carbon footprint and the necessary actions to attain the extended-term Net Zero objectives, underpinned by specific quantified targets. To achieve this, they aimed to identify a trusted third-party company with the expertise and data capabilities required to aid his team in formulating and executing an effective climate strategy. This collaboration exemplifies the increasing importance of partnerships and specialized resources in the journey toward a sustainable, net-zero future.

Pain Points

The Chief Sustainability Officer recognized that getting ahead of climate risk would require a detailed understanding of the company's carbon footprint and underlying sources of carbon emissions, as well as forward-looking metrics to establish their exposure to transition climate risks. His team wanted to:

  • Quantify carbon emissions linked to the company's equity and debt portfolios and investments in other asset classes, such as infrastructure and real estate.
  • Determine the transition risks that portfolio companies face should carbon prices increase as governments look to impose penalties on high greenhouse gas emitters. 
  • Understand to what extent portfolio companies are aligned with the goals of the Paris Agreement.
  • Set targets for GHG emissions reduction over time and disclose the company's climate strategy in line with the recommendations of the NZAOA.

The company had a history of working with S&P Global as a longstanding customer of S&P Global, and members of their sustainability team were already familiar with S&P Global's sustainability capabilities. They reached out to learn more about the climate-specific solutions to elevate their climate strategy and targets.

Solution

Sustainability specialists provided an overview of previously successful closed cases with similar targets, challenges, and solutions focused on accelerating the company's Net Zero journey. The project team supported this by assisting in quantifying carbon baselines, reviewing existing commitments, preventing overlaps with other committed targets, offering investment analysis, aiding in metric and target establishment, and providing comprehensive project management facilitation. This analysis involved leveraging extensive environmental, social and governance data and analytics. The sustainability specialists provided the solutions below to implement this approach:

Establish a baseline carbon footprint

S&P Global Market Intelligence helps companies collect the data they already have on carbon emissions. It complements missing carbon emissions data, filling in the gaps with modeling capacities. This task is executed with the help of the Trucost Environmental Dataset, which contains information on the direct and supply chain environmental impacts for a universe of over 16,000  companies, representing 98% of global market capitalization. Information about each company's environmental impact is updated annually using a mix of disclosed and, where gaps are present, modeled data. The data covers hundreds of environmental issues encompassing carbon and other pollutants, water dependency, natural resource efficiency, and waste disposal. These metrics are the bedrock of S&P Global Market Intelligence's solution.

Definition and quantification of the portfolio assets

The project team provides asset managers with a portfolio analysis and quantification service that aligns with the Net Zero Asset Owner Alliance guidelines. Once we establish the initial carbon footprint and align the assets with the NZAOA criteria, our team of specialists assists in quantifying the carbon footprint of their portfolio. This involves identifying opportunities for emission reduction and recommending sustainable investment strategies. Our analysis relies on emissions data, measures portfolio alignment with the goals of the Paris Agreement, and provides insights into the sectors most significantly affected within a given portfolio.

Portfolio metric setting

Setting portfolio metrics that align with the NZAOA guidelines is critical for asset managers who want to achieve sustainability and reduce emissions. Sustainability specialists provide actionable steps and a clear roadmap to support customers in reaching their sustainability targets while capitalizing on the growing market for sustainable investments. The metrics are selected depending on the asset emission types and can be product metric, carbon intensity, or absolute emissions based.

Pathway analysis

The project team provides a comprehensive pathway analysis service that helps asset managers identify the most effective strategies for reducing emissions and achieving sustainability goals. Our team of experts uses emissions data to analyze different scenarios to develop pathway models for each portfolio to understand the level of commitment possible per defined sector and sub-portfolio. Using the pathway analysis service, asset managers can develop a clear roadmap to achieve Net-Zero emissions by 2050 and demonstrate their commitment to sustainability.

Target setting and engagement

Target setting and engagement are essential to achieving sustainability goals in line with the NZAOA guidelines. S&P Global Market Intelligence provides a holistic service to assist asset managers in establishing emission reduction targets and actively engaging with companies to advance sustainability efforts, encompassing corporate and asset manager engagement. These tailored targets are aligned with the goals of the Paris Agreement and the NZAOA guidelines, equipping customers with the necessary tools to foster and advocate for sustainable practices.

Key Benefits
The sustainability team of the asset owner recognized several benefits in S&P Global's Market Intelligence's solutions and has subscribed to the discussed data and support services. They are now aligned with the requirements of the Net Zero Asset Managers Initiative and highly value:

  • A comprehensive action plan that guides the company's journey toward Net Zero. This plan allows for monitoring overall targets and taking necessary steps to reduce greenhouse gas (GHG) emissions further.
  • Access to a team of experienced climate specialists who assess climate-related risks and opportunities, providing valuable insights on various climate-related topics.
  • Active support on the latest climate regulations and report publishing, helping navigate through current legal and market climate-related changes aligned with their commitments.
  • Full project management support and oversight of all ongoing processes, enabling the company to focus on strategy and target delivery.
  • In-depth environmental data not available elsewhere, aiding in understanding the company's carbon footprint and the ability to fill data gaps using a proven methodology.
  • Scenario analysis tools for assessing the implications of higher carbon prices under different transition scenarios.
  • An emissions trajectory and plan that aligns with the goals of the Paris Agreement, ensuring investments are on track to meet Net Zero objectives.
  • Recognized TCFD reporting that demonstrates the company's commitment to reducing GHG emissions.
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