Deep Dive #8: Net Zero Carbon: 2022

Global temperatures are thought to have reached 1.2 °C of warming1 relative to pre-industrial levels. Climate science shows that 1.5°C of warming should be a limit and not a target. Given meeting this target looks increasingly unlikely, investors must play their part to avoid the worsening impacts, suffering and costs that any overshoot will bring.

Our message to companies remains consistent. Hurry up and get on with it.

The longer we wait to start taking the action needed to stay in line with our international targets, the harder and more costly it will be to reach them. The inaction of today and yesterday must be compensated for in the time that lies ahead.”

– Greta Thunberg, The Climate Book

This is the third annual report on our “Project: Net Zero Carbon” (read our previous reports here) and we have continued to evolve our approach. This reflects progress too towards our Net Zero Asset Management (NZAM) targets and related disclosures. We have also honed the way in which we select engagement targets by using carbon data to identify those portfolio holdings that appear to have particularly carbon intensive operations.

We have also tried to expand the ways in which we engage with our investee companies. During the summer of 2022 we hosted a CEO-to-CEO event focused on net zero. This was a unique event and brought business leaders together to share ideas, as well as the challenges faced when reducing emissions. We hope that this collaboration will breed innovation and a broader knowledge base. You can read more about the event on page 3 of this report.

We have seen the number of companies setting net zero and science based targets increase over the year. This is a promising development and shows that businesses are driven and motivated to improve their environmental performance. In conjunction with this, we have seen a dramatic reduction in the financed emissions associated with Montanaro portfolios. We set an annual 7% emission reduction target based on the P2 model from the IPCC special report on global warming. This is aligned to a 1.5°C scenario and we selected 2019 as the baseline year in order to achieve a 50% reduction in portfolio emissions by 2030 at the latest.

Between 2019 and 2020 the absolute emissions associated with our in scope portfolios reduced by 23.3%. Better still, emissions were reduced by a further 24.6% between 2020 and 2021. We are cautious, given the influence pandemic-induced lockdowns will have had on these reductions, that progress may slow in future years.

Nevertheless, the absolute portfolio emissions reductions seen since 2019 are extremely promising. It is these reductions that will lead to real-world changes and result in the carbon-free economy that the world needs.

Read the full report here

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