Instead, the report suggested that asset owners should take a more comprehensive “scorecard” approach that combines financial performance indicators with climate-specific measures such as emissions reductions. This means climate goals and financial goals can be aligned rather than compromised.
“There really isn’t a single metric that captures everything. Moreover, trying to integrate all this climate analysis and financial analysis into a single benchmark or index can be very complex or confusing. ” said Chris Fiddler. , head of global industry standards at CFA Institute, said in an interview. investment executive.
“It's probably best to have a set of metrics and consider the risks, returns, and real-world implications.”
He said the scorecard enables “clear and productive” conversations between asset owners and asset managers. Asset owners include pension funds, insurance companies, and sovereign wealth funds.
“If an asset owner wants to be very aggressive in achieving real-world impact, in order to do that there are several Trade-offs may be needed, such as broad market indexes, concentration risk, etc.,” Fidler said.
The report also argued that asset owners should look beyond the short term.
Fiddler explains that large asset owners typically hire asset managers on three- to five-year contracts, which are long enough to assess their effectiveness in meeting climate goals. It's not a period. He said that while annual returns were important, managers should be given sufficient time to effectively manage their net-zero investment strategies.
“It will probably take about eight to 10 years to properly assess how effective the strategy is before it actually has any real-world impact,” Fidler said.
The report also highlighted the use of incentives to motivate asset managers to decarbonize their portfolios, invest in climate action, and collaborate with companies on climate issues.
Asset management fees are generally not high enough to compensate management for the time and effort required to successfully conduct corporate engagements, so asset owners should, where appropriate, pay in addition to portfolio management fees. He suggested that companies could consider paying engagement fees to management.
The report cites the example of Japan's Pension Investment Fund Management Agency, stating that “external passive management “We are paying compensation to four companies.” Period perspective. ”
Overall, Fidler said benchmarks, time horizons and incentives are “all very interconnected” and that asset owners and the financial industry in general need to treat them as such.
“You have to think of them like a system. You can't just change one part individually. You have to think strategically and holistically about how all of this fits together,” he said. Said.
“There's still a lot of work to do,” Fidler said of achieving net zero.
“We really need policymakers to take the lead in setting the right rules and boundaries, what is permissible and what is not, and shaping the economic incentives.”
Read the full report here.
