I am currently consulting for an impact focused Wealth Management firm who is seeking to achieve Net Zero for their portfolio. Initially they were interested in using SBTi to do that, but then shied away because they thought they couldn’t agree to such a binding commitment when they do not have the leverage to make changes within portfolio companies and have some legacy investments that they are unable to get out of. Any guidance from those who have dealt with this? Thanks!
Welcome to the forum!
Portfolio coverage is a rather binary method and also requires the underlying investments to set targets validated byt he SBTi. The Temperature Rating approach is a bit for flexible, accepts all ambitious targets and provides a continuous result and target rather than a binary one.
However, both method are engagement methods and as such the investor can engage with the underlying companies to influence them to set targets. This can be done alone, e.g. voting at AGMs for equity, or together with others, e.g. through CA100+. If the WM is invested in 3rd party managed funds, they can naturally engage with the asset manager to influence them to manage the fund in alignment with the Paris agreement.
The point is, that to get to net-zero there are no short-cuts and it will require some uncomfortable conversations and decisions. SBTi is aiming to publish the first standard for net-zero target setting for financial institutions - FINZ - during 2023, to help FIs to set science based net-zero targets.