Investment Insights Blog: Wespath Sets Near-Term Portfolio Carbon Intensity Reduction Targets
By Jake Barnett
Director, Sustainable Investment Stewardship
In April 2020, Wespath joined the United Nations (UN)-convened Net-Zero Asset Owner Alliance (Alliance), committing to pursue strategies that will achieve net-zero portfolio emissions by 2050.
The Alliance and its members understand that this goal – one which aligns with the 1.5°C scenario outlined in the Paris Climate Agreement – looks well into the future. To help ensure we are on track to fulfill this long-term goal by 2050, Alliance members are setting near-term targets for achieving emissions reductions at certain intervals.
Accordingly, Wespath today announced that it will pursue an interim goal of reducing the carbon intensity of its investment funds1 by 35% from October 2018 levels by 2025. In line with the Alliance’s Target Setting Protocol, our interim goal also includes targets related to participating in shareholder engagements and financing the transition to net-zero through targeted investments.
This is a transformative initiative, and we look forward to continued work with the Alliance and other efforts focused on leading the transition to a net-zero economy.
Continuing Commitment to Our Beliefs
Wespath adopted its “Low-Carbon Transition” Investment Belief in 2017. It clearly acknowledges that addressing climate risks is fully aligned with our fiduciary responsibility to our stakeholders:
|“A global transition to a low-carbon economy is underway driven by the world’s assessment of environmental risks. We believe public policies, emerging technologies and physical impacts associated with concerns about climate change are creating winners and losers across companies, industries and countries, impacting investment returns. As prudent fiduciaries, we must assess these global risks and opportunities in the management of our funds.”|
Subsequent to implementing this belief, other asset owners, asset managers, businesses, governments, and numerous other organizations have echoed our conviction. Corporate commitments to net-zero tripled in the last year, and countries accounting for 70% of global GDP formally committed to net-zero greenhouse gas (GHG) emissions. Yet, scientists agree that more action is needed if we are to avoid the severe adverse consequences of extreme climate change.
In addition, Wespath developed a Sustainable Economy Framework, which states that investors must accelerate the transition to a sustainable global economy – defined as one that supports social cohesion, long-term prosperity for all, and environmental health. We view our Low-Carbon Transition belief and our Sustainable Economy Framework as complementary – they are each statements of intent that support the economic change required to achieve our stakeholders’ investment return objectives aligned with our fiduciary duty over the long-term.
Our Theory of Change
We believe the best way to support the transition to net-zero, create a sustainable global economy, and, more immediately, reach our new 35% carbon intensity reduction target, is through active engagement with influential actors in the real economy.
We will continue to engage portfolio companies, asset managers and global policymakers on the urgent need to align their operations and investments with the shift to net-zero. While this is not a new strategy for Wespath, we believe there are new and emerging opportunities for key dialogues.
Notably, we will focus on expanded asset manager engagement. Wespath has long engaged its external asset managers on environmental, social and governance (ESG) issues, including climate change. Now, alongside our asset owner partners, we are elevating the tools available to all asset owners seeking to engage their own asset managers on climate action.
As co-lead of the Alliance’s asset manager engagement working area, Wespath helped develop a set of principles that serve as the foundation for assessing and engaging asset managers on climate-related proxy voting (read more about this resource here). These principles were released last week and are now an integral element of asset manager due diligence practices at Wespath and multiple other Alliance members. Ultimately this will strengthen the alignment between asset owners and asset managers on climate action, resulting in real change at portfolio companies and throughout the economy.
Additionally, Wespath is expanding the scope of our climate-related policy engagement. This year we have already signed onto multiple public policy initiatives calling for responsible climate regulation. In January, we endorsed the Just Transition Statement, which calls for collaboration between governments, investors and businesses in support of a just and equitable response to climate change.
Finally, Wespath will continue our work pursuing corporate climate engagement. We co-lead four company engagements through the Climate Action 100+, an investor coalition representing more than $50 trillion in assets focused on the transition to net-zero. Three out of the four companies for which we serve as the engagement co-lead committed to net-zero by 2050!
Wespath is grateful for the opportunity to present these targets and to continue to collaborate with our partners to work for a sustainable global economy.
1 Per the guidelines of the Net-Zero Asset Owner Alliance’s Inaugural 2025 Target Setting Protocol, emissions reduction targets include investments in three asset classes: listed equity, publicly traded corporate debt and real estate. The scope of emissions reduction targets is likely to increase as more asset classes are included in the future. Additional details on the Target Setting Protocol are available here.