New research by the CFA Institute has unscored the growing importance of adopting a comprehensive investment approach that integrates net zero targets alongside traditional risk and return metrics. The report explored the challenges asset owners and managers face in integrating climate risks into their portfolios, outlining how climate objectives, risk management and financial goals can be better integrated to more effectively manage investments in a transitioning economy. “As the global push for net zero carbon emissions accelerates, investors must look to adapt their strategies to meet both climate and financial objectives,” said Chris Fidler, the CFA Institute’s Head of Global Industry Standards. “Our research shows that managing these transitions requires more than just setting long-term climate targets. It involves integrating net zero benchmarks, aligning incentives, and adopting suitable time horizons for meaningful progress.” A successful net zero investment programme should enhance, not compromise, traditional financial objectives, the report said. In addition, the CFA Institute suggested that investors adopt a ‘scorecard’ approach to holistically evaluate portfolio performance – both financial and climate-wise – against selected benchmarks. The report also highlighted the need for asset owners to provide more incentives to motivate asset managers to engagement in portfolio decarbonisation and climate solutions. Investors should adopt a minimum five-year performance evaluation period to better capture the impact of climate investments and engagement efforts, the report noted. “Climate change has the potential to materially and unexpectedly impact portfolio assets both now and in the future, as the world works to mitigate this systemic risk,” said Fidler. “Evaluating the success of a net zero investment strategy must account for this, as it differs significantly from the typical three- to five-year performance cycles used by many investors.”
