What does net zero mean for wealth management clients?
Understanding the investment risks and opportunities that arise from climate change and positioning our clients’ portfolios accordingly is a fundamental part of our fiduciary duty.
It is increasingly hard to ignore the impact of climate change. The frequency of extreme weather events, their impact on food security and the shift to new forms of energy underscore our belief that few areas of the global economy will be immune to this global challenge. As stewards of our clients’ assets, our responsibility is to understand the risks and opportunities that these changes bring, and to position our clients’ portfolios for the future.
As part of the Schroders Group, we have chosen to operate our overall business on a “carbon neutral” basis since 2020. This means that we have reduced carbon emissions throughout our operations and supply chains around the world and offset any emissions that cannot be avoided. In reality, however, these emissions are negligible compared to the emissions associated with our investments. We believe that as a large wealth and asset manager we can do more to facilitate the transition to a low–carbon future – while also serving our clients’ long-term interests.
In December 2020, Schroders became a founding signatory to the Net Zero Asset Managers initiative which calls on investment managers to ensure that their assets under management are aligned with the goal of net zero emissions by 2050. This is consistent with keeping global temperature increases to no more than 1.5°C above pre-industrial levels, the target set in the 2015 Paris Agreement. We believe that moving towards “net zero” is in the interest of all investors, in that it protects them from undue risk from climate change and allows more capital to be directed towards the opportunities that decarbonisation will bring.
At Cazenove Capital, our objective is that all our discretionary* assets under management will be net zero-aligned by 2050. We have now published our Climate Transition Action Plan, which sets out how we intend to achieve this.
As a wealth manager with an open architecture approach, an important part of our strategy is focused on building best practice in the broader industry, using our influence to ensure our selected external fund managers also factor climate risk into their investment processes. Our research indicates that approximately 60% of the third-party managers we work with have made a net zero commitment at the corporate level. However, many of these firms have yet to formally embed this high-level engagement into how their underlying funds are currently managed. By encouraging managers to take this next step, we hope that they, in turn, will accelerate positive change in the companies they invest in.
We are also actively supporting organisations and initiatives that are working to protect and restore nature. Our work with Kew Gardens is just one example of this. Kew is home to one of the largest botanical collections in the world and supporting its scientific research into biodiversity reflects our commitment to finding nature-based solutions to climate change. We are proud to sponsor Kew’s annual Orchid festival which will next take place in February 2024.
We recognise that opinions on sustainability vary from client to client and as ever, our role will be to help all clients align their investments with their personal values and financial goals and to offer them the broadest possible range of options.
Some clients expect us to prioritise financial returns over climate considerations. We are sometimes asked how our net zero commitment can be consistent with offering clients the full range of investment choice. The reality is that it does impose some constraints as we will always seek to protect your capital from undue climate change risk. We are therefore unlikely to offer portfolios dominated by carbon-intensive businesses, and when we do invest in these companies, we will use our influence to encourage them to reduce emissions.
Conversely, many clients have indicated that they want their investment portfolios to go beyond just factoring in climate risks and to actively contribute to solutions. Our Sustainable and Impact strategies achieve this by reallocating capital away from climate laggards and investing in climate solutions.
Climate change will affect us all in the coming years and decades. We are taking meaningful action today.
*This excludes clients’ execution-only assets. It also excludes any legacy assets misaligned with our net zero commitment which might be transferred to us in-specie when we take on new discretionary clients. Our approach would be to manage these legacy assets down over a suitable period of time as the portfolio is reorganised, taking into account factors such as tax considerations and market movements.
This article is issued by Cazenove Capital which is part of the Schroders Group and a trading name of Schroder & Co. Limited, 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.
Nothing in this document should be deemed to constitute the provision of financial, investment or other professional advice in any way. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested.
This document may include forward-looking statements that are based upon our current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements.
All data contained within this document is sourced from Cazenove Capital unless otherwise stated.