We have begun our journey. As a proud signatory of the Net Zero Asset Managers initiative, we believe that there is an urgent need to accelerate the transition towards global net zero emissions.
In establishing our net zero targets, both in interim by 2030 and ultimately by 2050, we are playing our part in helping to deliver the goals of the Paris Agreement and ensure a just transition to the low-carbon economy.
We have set the following three targets for our in-scope assets, based on the IIGCC Paris Aligned Investment Initiative’s Net Zero Investment Framework.
We have set targets for our in-scope assets, using the IIGCC Paris Aligned Investment Initiative’s Net Zero Investment Framework as our base starting point.
Given our business model, our aggregate portfolio broadly reflects the market, and our perspective is that of a universal owner of assets. This means that real-economy carbon emissions reductions, across all sectors and all regions, are critical for our ability to meet our Net Zero goals by 2050. Our strategy for increasing the proportion of assets to be managed in line with net zero is tailored to the key levers we have to further the transition to a low- carbon economy.
Our primary lever is engagement with investee companies, clients, and market participants including policymakers and index vendors.
Within engagement, we encourage investee companies to adopt de-carbonization goals and/or energy transition plans, advocate policy-makers to promote climate related disclosures, and work with index vendors to offer net- zero-aligned indices. Our stewardship efforts are focused on driving broad climate action in the market across sectors as well as more targeted action for companies with the most significant emissions. In addition, we aim to develop more low carbon and climate-aligned investment solutions, products, and analytics to our clients. To that extent, we have been investing in talent and data and are doubling the staff of the Engagement Team in 2022.
Intended to drive credibility and accountability, our approach is based on considerations of clients, methodology robustness and data availability, as well as our business model. We include assets from clients who have adopted net zero targets or similar climate commitments, or may be reasonably expected to do so. We consider portfolios invested in equities and corporate fixed income. These asset classes, net zero eligible, represent 68.5% of AUM, of which 20.5% are included in our interim targets ($582.7 billion or 14.1% of our total AUM as of December 31, 2021).
As we work to increase our in-scope assets to 100% over time, we intend to actively engage with clients to encourage them to adopt net zero goals and consider strategies that are aligned with net zero. In addition, we will look to expand coverage to other asset classes (e.g. sovereign bonds, cash) where we have material AUM, as clear methodologies develop in the industry.
“We must do our part to hold ourselves accountable for progress. Last April, we joined the Net Zero Asset Managers Initiative to ensure our portfolios reach net-zero greenhouse gas emissions by 2050 or sooner and set interim targets for 2030.”
We intend to report on the progress we make regarding our interim targets on a yearly basis and will review (and potentially revise) our targets as warranted. We highlight that the methodologies and data calculations used in climate target setting are likely to evolve and are subject to change.
We’re pleased to have completed our inaugural Task Force on Climate-related Financial Disclosures report. This document provides in-depth information around our governance approach, strategy, risk management, and climate-related targets.
Additionally, our Annual Asset Stewardship Report provides a detailed update on our climate initiatives, alongside our broader stewardship eﬀorts.
The returns on a portfolio of securities which exclude companies that do not meet the portfolio's specified ESG criteria may trail the returns on a portfolio of securities which include such companies. A portfolio's ESG criteria may result in the portfolio investing in industry sectors or securities which underperform the market as a whole.
Responsible-Factor (R Factor) scoring is designed by State Street to reflect certain ESG characteristics and does not represent investment performance. Results generated out of the scoring model is based on sustainability and corporate governance dimensions of a scored entity.
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