Demystifying Net Zero
Designing a framework for investing in net-zero transition leaders.
The climate science has confirmed that without deep and rapid reductions in greenhouse gas emissions, our planet will exceed 2°C of warming above pre-industrial times (1850–1900) this century.
The physical consequences of human-induced warming have already begun to materialise, but the worst outcomes are still avoidable if we reduce net global greenhouse gas emissions to zero by 2050, in line with a 1.5°C warming scenario.
Governments and corporations will play a pivotal role in directing the climate onto a 1.5°C trajectory, but as individuals, we also have scope for taking action against climate change, including through our investment portfolios.
Investors can address transition and physical risks and capitalise on an investment opportunity by investing in companies that are fully committed to a net-zero emissions future, we call these net-zero transition leaders.
Identifying true net-zero transition leaders requires a robust selection process that is driven by data. We have developed a screening process that establishes which companies have:
1. CLIMATE RELEVANCE, meaning influence over sufficient emissions to make their absolute reductions impactful,
2. demonstrated INTENTIONALITY and
3. MEASURABILITY baked into their target framework and disclosures
“The worst outcomes are still avoidable if we reduce net global greenhouse gas emissions to zero by 2050, in line with a 1.5°C warming scenario.”
An increasing number of investment funds also target net-zero transition leaders. We have identified the best practices in the space in order to select those managers that are most closely aligned with the climate transition. The guidelines articulated in this paper are voluntarily stringent as we want to set a high bar when screening managers to ensure they are on a credible transition pathway.
Companies with ambitious plans towards net-zero emissions will also allocate significant resources to, and accelerate demand for, the climate solutions that will enable the transition. While this paper will focus on investing in net-zero transition leaders, they are a key complement to investments in companies providing the solutions that will enable and accelerate the transition. For over 20 years, Pictet has been actively investing in many of these crucial themes, which are a key component to achieving the ultimate goal of the Paris Agreement.