In the latest episode of As You Sow’s new series “As You Talk” on Clubhouse, Danielle Fugere, president of AYS, spoke with Billy Gridley, director of the Investor Network at Ceres, and Tim Dunn, investment professional and founder of Terra Alpha Investments, about the actions investors and companies are taking to meet net-zero targets and mitigate climate risk.

When it comes to reducing investments in fossil fuels, it’s important to remember that we live in a carbon-based economy, said Dunn, who, prior to launching Terra Alpha Investments, spent nearly two decades as a lead portfolio manager at the Capital Group.

Dunn serves on the World Resources Institute Global Leadership Council and has worked with the Carbon Disclosure Project, a nonprofit that helps thousands of companies, cities, states and regions measure and manage their risks and opportunities on climate change, water security, and deforestation.

“Every company is a user of fossil fuels,” said Dunn. “And while it's important to focus on the supply side of investing in fossil fuel companies, we have to also understand and focus on the demand side” of the equation.  

Understanding how to help companies transition away from fossil fuel dependency and move towards innovative, renewable energy sources and transportation systems is key, Dunn said.

Net zero movement is gaining speed

One way to do that is through the Net Zero Asset Managers initiative, of which Ceres is a founding member. Launched in December 2020, the initiative is an international group of asset managers committed to reaching net zero greenhouse gas emissions by 2050, a goal aligned with global efforts to limit global warming to 1.5 degrees Celsius.

With now 87 signatories and $37 trillion in management assets, the initiative is a “watershed development for global capital markets,” said Gridley, who helps Ceres and its members identify sustainable investment opportunities and risks in public and private capital markets. He also manages relationships with owners and managers in Ceres’ network, including BlackRock, State Street, and Fidelity.

The birth of Net Zero Asset Managers was made possible due to a heightened focus on sustainability, leadership in Europe “and the opening of a classic Overton policy window in the U.S. and elsewhere,” Gridley said.

The Net Zero Asset Managers initiative reflects the growing global awareness of the climate crisis, Gridley said. Building decarbonized portfolios “across the entire financial system is a process of learning and discovering and sharing tools,” he said.

“The bigger context is you've got the three major private sector groups - investors, banks and insurance - together with $150 trillion or so of investments, loans, and contracts, waking up and taking action across all those types of assets based on systemic risk and other societal forces.”

How companies and investment managers are meeting net-zero targets

When it comes to the specific actions companies and investment managers are taking to meet net-zero targets, Gridley said there are three top commitments, with the first being “portfolio decarbonization pathways” in which you set targets to increase the proportion of your assets under management aligned to net zero emissions.

“There also is a commitment to develop a clear investor climate action plan,” he said. “You've got to start moving money, but you need a plan to move your whole portfolio over time to a decarbonized portfolio.”

When asked how likely it is to get companies to align with net-zero targets, and how investment professionals track their progress, Dunn explained that Terra Alpha Investments endorses the Science Based Targets initiative (SBTi). According to its website, SBTi shows “companies how much and how quickly they need to reduce their greenhouse gas emissions to prevent the worst effects of climate change.”

SBTi helps companies set emissions reductions goals and, now, net-zero targets based on the latest climate science. Over 700 companies worldwide have been approved, and over 500 others have committed, said Dunn.

While companies are getting better at reporting data on climate change initiatives, there’s still a lot of work to be done to illustrate how much progress companies are making, he said.

“There are companies who are moving very quickly. They've invested in renewable energy. They've [increased energy efficiency] and taken a lot of other actions, but . . . that hasn't gotten them all the way.” The path to net zero is still being developed.”

To achieve the net zero goal, asset managers will continue to invest in companies that are leading in the drive toward net zero emissions, work with asset owners to focus on this goal, create net zero and low emissions funds, and prioritize investments that are creating real world change.

Stay tuned for more episodes of “As You Talk,” which air Thursdays at noon Pacific on Clubhouse.