Climate change is one of the most pressing issues of our time. Analysis suggests that long-run returns may be materially different when the impact of climate change is taken into account[1]. We believe that every economy, industry and company will need to plot a net-zero path to remain competitive. As an investment manager, our mission is to ensure that we are delivering investment performance for our clients over the long-term by contributing to a sustainable future.
We are proud to have become one of the largest asset managers[2] by assets under management to have its targets validated by the Science Based Targets Initiative (SBTi). It is a recognition of our commitment to climate leadership, and we hope it will encourage our peers and clients to take similar action. We were also a founding member of the Net Zero Asset Managers initiative[3], committing to achieve net zero emissions by 2050 or sooner.
Our net zero commitment spans across both the investments we manage on behalf of our clients and our operations. However, our financed emissions are approximately 6,000[4] times greater than those from our own business operations, and so the commitments we make across our clients portfolios will be key to contributing to real world emissions reductions. Our net zero commitment is just the first step – we need a plan of action and a way of tracking our progress against it. Our Climate Transition Action Plan[5] outlines the concrete steps we will be taking to meet our targets. The way we will track and be held to account for our progress is through SBTi.
In 2022, SBTi validated our mid and long-term targets, where we committed to align all of our managed assets to a 1.5 degree world by 2040. We aim to reduce the implied temperature of our clients’ portfolios from a baseline of 2.9°C in 2019, to 1.5°C across Scope 1, 2 and 3 emissions in 2040, with an interim target of 2.2°C across Scope 1 and 2 emissions by 2030.
At a firm level, we are taking immediate action to reduce the impact from our own value chain emissions. Including reduction targets on business travel and within our supply chain. By understanding and engaging with our supplier base, we can target those that contribute the most GHG emissions from the goods and services we procure.
OUR CLIMATE TRANSITION ACTION
1. Measurement and realignment of client portfolios
The first step in our climate transition pathway is to understand our exposure to climate-related risks and measure the progress our investee companies make. We have developed several tools to assess the risks and opportunities created by climate change. The current temperature alignment of our managed assets is assessed using the industry-recognised CDP-WWF temperature rating methodology.
2. Active Ownership
We have a long-standing commitment to Active Ownership, using our influence to help companies transition to a more sustainable future. We aim to support their efforts to decarbonise in line with a net zero or 1.5°C pathway, which we believe is crucial to ensuring those businesses adapt and thrive. As part of this engagement approach, we’ve engaged with companies globally to understand their decarbonisation plants.
As part of this we urge them to establish short, medium and long-term targets for Scopes 1,2 and the most material Scope 3 emissions. We continue to monitor progress of these commitments and will use escalation to hold companies to account where we do not see progress being made. This is laid out in our 5-step climate engagement and escalation framework below. We are committed to using all the tools we have as investors to drive progress.
3. Products and solutions
Our net zero commitment is for all our managed assets. We are also committed to contributing to climate solutions and investing in those companies that are leading the way in the global transition.
We launched our first climate change strategy in 2007, and since then have built a suite of climate-progressive solutions. Our breath of strategies include those seeking to benefit stakeholders (customers, employees, local communities, governments and the environment) through portfolios that deliver, relative to its benchmark, a positive impact to society. We have also built strategies to contribute to the solutions needed to solve the environmental challenges we face.
WHAT NEXT?
The past year has see the advancement of our climate commitments. From being one of the first companies to have their science-based target 'validated by SBTi, to our partnership with Natural Capital Research. Achieving our net zero target is a crucial focus for us and engaging with the companies we own will be key to achieving this.
References
[1] Source: Schroders, 2022, https://prod.schroders.com/en/sysglobalassets/digital/insights/pdfs/30-year-return_forecasts/schroders_30_year_return_forecasts.pdf
[2] Source: SBTi, July 2022, https://sciencebasedtargets.org/companies-taking-action/case-studies/case-study-schroders
[3] https://www.netzeroassetmanagers.org/signatories/schroders-plc/
[4] Source: Schroders, December 2021
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