Developments in and around the ESG investment space.

Schroders
Schroders has teamed up with Singapore sovereign wealth fund GIC to focus more sharply on how emissions are measured in investment and portfolio analysis.

Investors are familiar by now with the conventional Scope 1, 2 and 3 emissions metrics that focus on various aspects of what companies emit from their own operations. But those at the forefront of designing ways to decarbonise economies recognise the need to push beyond these metrics and develop products and services that can measure emissions' savings economy-wide that are not currently being captured well, if at all, by existing models.

The term “avoided emissions” is a framework that can quantify the emissions saved when high-carbon activities are substituted for low-carbon alternatives; it can be seen as an important next phase in measuring the journey to a low carbon future.

"It is no longer just a concept," Johanna Kyrklund, group chief investment officer at Schroders, said. “We have already put the avoided emissions framework to work, integrating this into our proprietary tool SustainEx, which measures a portfolio’s overall environmental and social contribution.”

Kyrklund says that the progress the firm has made has put Schroders “ahead in identifying and capitalising on the potential winners from the shift to a low carbon economy, whilst seeking to avoid the losers, benefitting our clients’ portfolios in the long term.”

The global manager wants its research with GIC to pave the way for more holistic climate accounting that provides a complete view of the carbon exposure facing individual business models. As investors and regulators ask tougher questions of the climate risk analysis undertaken by firms, their performance in this area will increasingly set fund managers apart.

A persistent criticism of the net zero commitments flooding in from policymakers and investment firms is how accurately they are measuring or even can measure and deliver on this progress and vouch to investors that their portfolios are aligned.

Schroders and GIC say they hope to expand their emissions research to include accounting for regional and industry differences as well as extending coverage to private markets and more carbon-avoiding activities as technologies mature, the partners said.

GIC investment director Kevin Bong says that firms are entering “a multi-decade carbon transition” which is likely to entail a rewiring of the modern economy. “Investors need to fully consider the causes and effects of climate change on their portfolios,” he said.

Jersey Finance
The island of Jersey has joined the Network of Financial Centres for Sustainability (FC4S), a network of centres aiming to achieve the United Nation’s Sustainable Development Goals and the Paris agreement on climate change.

Jersey is the 39th member of the network, Jersey Finance – the jurisdiction’s promotional arm for its financial sector – said in a statement yesterday.

In March this year Jersey Finance launched a strategy fleshing out how it will support sustainable investments: “Jersey for Good – A Sustainable Future.”