Partnering for Impact: Institutional Investors and the Move to Net Zero

Brian Means, CFA, will speak at Climate Risks and Rewards Conference of the CFA Institute, held on the 20th–21 April 2023 in New York City.

Partnerships between institutional investors are critical to achieving a low carbon economy.

As institutional investors, we have a fiduciary duty to act in the best interests of our beneficiaries and to earn investment returns sufficient to meet their expectations. To achieve this, we also need to ensure that there are stable financial, social and environmental systems in place to build those returns.

At University Retirement Plan (UPP), we believe that strengthening health systems goes hand in hand with our fiduciary duty to our members. That is why, when we developed our response to climate change and our net-zero approach, we set our sights outside our own portfolio, because we know that emissions must also be falling in the real world and that a well-managed low-carbon transition requires systemic change from all corners of the global economy.

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The transition to net zero also provides opportunities for investors – institutional and otherwise – to build confidence, resilience, and competitiveness in the broader economy through profitable financing activities that support sustainable solutions and reduce emissions.

By contributing to collaborative initiatives with the global investment community, investors create mutual relationships in which we can share experiences and best practices, leverage resources, and amplify our impact to drive the change we need. In this way, we can reduce uncertainty and risk and increase our potential for return.

This collaborative effort between asset owners is one of the most effective means for organizations like ours to catalyze systemic change and implement our shared fiduciary duty.

Systemic risk requires collective action

When investors are directly involved and set expectations for both the companies they own and the outside managers they partner with, we help keep those companies focused on the path of transformation, on improving their resilience and reducing emissions. Investors also need companies to improve their climate disclosures to better track their progress toward net-zero goals and make more informed investment decisions.

Finance-led groups such as the Climate Action 100+ and the IIGCC are working to ensure sound science, alignment and consistency in all members’ activities. By engaging with many high emitting companies with a common set of goals, we are not only working to change their behavior but also to improve climate forecasts and structure information flows for all companies and investors.

Collective advocacy to protect and enhance value

Through group advocacy with policymakers and regulators, investors can encourage rules and frameworks that support the interests of our beneficiaries and create the conditions for a well-managed climate transition. Investors can collaborate and amplify their voices through well-established industry initiatives such as the United Nations-convened Net-Zero Asset Owner Alliance (NZAOA), a member organization of 85 institutional investors with more than $11 trillion in assets under management (AUM), and the Ceres Investor Network. Network on climate risk and sustainability, which collectively represent more than 220 investors and over $60 trillion in assets under management.

Through our participation in policy working groups, such as those convened by the Canadian Alliance for Good Governance and the Association for Responsible Investment, we can identify and promote good corporate governance practices in Canada and around the world. We can also influence public policy to improve governance standards. More transparency, accountability and disclosure, in turn, helps manage risk and protect the value of investments.

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Partnership in times of change makes the group stronger

As domestic and international climate change regulations and incentive frameworks evolve, investors face new legal, reputational risks as well as potential impacts on returns. Rather than navigating this evolving landscape alone, they can join coalitions of investors and help coordinate policy advocacy, facilitate improved knowledge sharing, and mitigate old and new risks.

For example, to counter greenwashing and provide investors with more and better information to help guide their decisions, the International Sustainability Standards Board (ISSB) will implement new global accounting standards for measuring and reporting climate-related impacts in January 2024. Investor groups contributing to the development of these new standards are preparing to support Launch it all over the world. Again, individual investors will be hard-pressed to keep up with the rapid pace of change in this area or to develop the collective influence that a group of investors can muster.

There are many options for joining like-minded investors in the local markets or on the international stage. The global low-carbon transition will continue to challenge all types of investors and present both risks and opportunities along the way. Net zero will not be achieved in isolation but will take collective action across the financial community.

Together, through partnerships between institutional investors and investors of all sizes, we can help shape the future of finance and bring about the sweeping and sweeping change required to make net zero a reality.

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All posts are the opinion of the author. As such, it should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of the CFA Institute or the author’s employer.

Photo credit: © Getty Images / JamesBrey

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Brian Means, CFA

Brian Means, CFA, is the Senior Managing Director for Responsible Investment at University Pension Plan (UPP). He is the co-founder and former co-chair of the Canadian Responsible Investment Working Group, a member of the ESG Technical Committee at the CFA Institute, a member of the Policy Oversight Group of the Responsible Investment Association, and a member of the Canadian Good Governance Alliance. Public Policy Committee.

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