As the world moves toward achieving a net-zero economy, asset owners must proactively align their investments with climate change imperatives.
The universal ownership philosophy allows asset owners to take a broader view of their portfolios, considering not only direct investments but also the impact of global events and systemic risks. This philosophy fosters a sense of stewardship over the entire economic system, aligning with their long-term fiduciary responsibilities.
This approach also encourages collaboration among asset owners. As stewards, they can shape corporate behavior and influence market dynamics, reinforcing their collective impact on the transition to a more sustainable and equitable future which are foundations for a sustainable economy.
One critical step in this process is reassessing policy benchmarks to ensure they reflect the risks and opportunities of a carbon-neutral economy. Given the significant influence of policy benchmarks on portfolio performance, asset owners should consider using climate-risk-adjusted or net-zero-aligned benchmarks. Since governing bodies, like trustee boards, often choose benchmarks and assign investment teams to manage them, it’s essential to recognize the substantial impact of this decision. A clear, well-defined vision for policy benchmarks will help mitigate climate risks and strengthen portfolio resilience.
Additionally, bond portfolios play a pivotal role in this transition. Bonds can affect a company’s cost of capital, with a more immediate impact than stocks. By using climate-conscious bond benchmarks, asset owners can accelerate the transition by steering capital away from companies hindering progress toward a net-zero economy and supporting those driving it forward. This targeted approach is a powerful tool for reducing emissions and fostering sustainability.
Finally, collaboration among asset owners is essential. The complexities of index construction and benchmark use, particularly in fixed income, present challenges and opportunities. By working together, asset owners can share insights, overcome barriers, and develop solutions to accelerate progress toward a net-zero economy.
This report provides insights for asset owners navigating the evolving landscape of net-zero-aligned investments, building sustainable portfolios in a sustainable world.
Hiro Mizuno
Former UN Special Envoy for Sustainable Investments
Former Executive Management Director and former CIO of GPIF
(Government Pension Investment Fund of Japan)
