Science-led Climate Targets Offer Impact “Roadmap”

GIIN report says asset owners can migrate use of quantitative climate-based targets to improve social impact. 

Asset owners’ efforts to align their portfolios with the Paris Climate Agreement are paving the way for wider use of quantitative impact targets, according to a new report on target-setting from the Global Impact Investing Network (GIIN).

The report says use of quantitative targets by asset owners to achieve climate impact is becoming more common, but it found that most asset owners have not yet settled on a systematic approach for impact investing across their entire portfolios. Although a growing number of investors are identifying impact themes, only “a small handful” of interviewees are actively measuring and managing impact.

The GIIN report, titled ‘Institutional Asset Owners: Approaches to setting social and environmental goals’, offers advice to asset owners on setting priorities and selecting impact targets. It is based on survey responses and one-on-one interviews with 24 asset owners with a collective US4.7 trillion in assets under management.

GIIN found that climate was the most frequently used impact category by its sample, ahead of real estate, energy, infrastructure and diversity & inclusion. Both quantitative and qualitative targets are being set by asset owners to achieve impact, with the vast majority being set to achieve net-zero emissions by 2050 or related decarbonisation targets. Few asset owners have set targets beyond the climate context, GIIN reported.

But the report said that the science-led approach increasingly being taken by asset owners offers “a strong roadmap, with significant potential to leverage existing data sets within social impact themes to develop methodologies based on the SBTi approach”.

The Science-Based Targets initiative provides guidance and frameworks to companies looking to reduce their carbon emissions in line with the goals of the Paris Climate Agreement. Its approach has been leveraged by the UN-convened Net-Zero Asset Owners Alliance as the basis for its 2025 Target Setting Protocol, which requires members to cut portfolio emissions by 16-29%.

“With clearly articulated and well-defined goals, asset owners may be better placed to set strategy, track impact, manage performance, and assess progress to drive toward stronger performance and remain accountable,” the report added.

The report also found asset owners are transitioning from asset allocation targets for impact in order to effect change more efficiently, but noted that the choice of impact-specific goals is highly varied “with no standard or uniform approach to selecting indicators against which to measure progress”.

With reference to the climate-based targets already set by survey participants, GIIN said asset owners’ key choices included degree of specificity, qualitative versus quantitative approaches, setting of timelines, use of reference points and application of targets at the asset class, portfolio or organisation level.

The report also noticed a divergence between use of top-down portfolio level targets, most often adopted by large pension funds and insurance firms, and bottom-up measures “determined organically within the portfolio based on past performance and set at the investee level, in particular for smaller organisations”.

“The model of using an evidence base and data to inform target-setting can be applied to social impact themes, which are at present more qualitative in nature. Institutional asset owners are keen to better understand how they can leverage existing datasets to help inform their target-setting especially across social impact themes and move toward setting specific, quantifiable targets,” a spokesperson added.

Participating organisations included Allianz, Aware Super, Brunel Pension Partnership, CalSTRS, PGGM, Prudential Financial, Swiss Re and Zurich. The report is the first in a three-part series focused on asset owners, with the second instalment scheduled for release in the autumn.

GIIN is a global network of impact investors and provides supporting tools and frameworks to help members to integrate impact factors into their investment processes. These include its COMPASS methodology for assessing and comparing impact results.

The practical information hub for asset owners looking to invest successfully and sustainably for the long term. As best practice evolves, we will share the news, insights and data to guide asset owners on their individual journey to ESG integration.

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