For investors who seek to align with the Paris Agreement and achieve net zero emissions, we have developed tools and solutions to implement sustainable investment strategies. The frameworks and guidance followed by such investors may seek to achieve net zero emissions by a combination of:
Broadly, we see four main areas of consideration adopted by investors to meet these goals:
Climate Investment Solutions and Asset Allocation
Investors adopting a net zero strategy may seek to adjust their asset allocation based on the climate-related risk and return profile of their investment, which includes the selection of climate-related products. Investors can choose from a variety of climate-related metrics and data that can be integrated in the portfolio construction process and that are utilized in investment products. Some examples of such measures are more backward-looking in nature, while others are more forward-looking. The feasibility and applicability of different metrics in portfolio construction depend on various factors, including data quality and coverage, and are also asset class-dependent.
While we prefer to engage with companies, investors may choose to exclude certain investments based on their net zero investment goals. These custom divestments can be made based on a variety of metrics, such as the volume of CO2 emissions of a company, or indirect ownership of companies involved with certain industries. Determining appropriate thresholds for some of these metrics can prove complicated. We can help our clients with the required data and assistance to develop these exclusionary screens.
Companies across markets and industries are exposed to varying levels of physical, regulatory, economic, and transition risks related to climate change. Companies may also benefit from opportunities associated with the transition to a lower-carbon economy. Net zero-related engagement involves working with portfolio companies to understand how companies are approaching and planning for these opportunities and risks and how they are disclosing this information to investors.
Some investors engage with companies and execute their voting rights at shareholder meetings themselves, but many rely on third-party proxy advisors or their asset managers. For clients that appoint State Street Global Advisors to perform these services, our Asset Stewardship program focuses on engaging with investee companies to mitigate risk to our clients’ portfolios and seek long-term value creation. In fact, climate risk has been a stewardship priority for State Street Global Advisors since 2014. We continue to engage with investee companies to encourage boards to have oversight of climate-change related risks and opportunities and to disclose information regarding their approach to identifying and managing these risks and opportunities.
For clients that wish to take a different approach, we also offer a proxy voting program that gives investors the choice to select from a variety of voting policies for a select group of funds
For our investors, and an increasing number of regulators, accurate reporting is key to ensuring strategy effectiveness. Various metrics such as those outlined by the Task Force for Climate-Related Financial Disclosure (TCFD) and a broader, wide range of climate profile statistics are available.