Asset manager Ninety One has launched its Net Zero Sovereign Index that aims to provide sovereign-debt investors’ with a high calibre, independently verified, Paris agreement-aligned assessment of their assets and portfolios.
Current net-zero approaches, the company argues in its recently published whitepaper, entitled No One Left Behind: Building an Inclusive Transition for Emerging Markets, can have major negative economic and social impacts on some of the world’s least advantaged communities, which are often the most vulnerable to the impacts of climate change. No net-zero in some parts of the world means no net-zero everywhere.
What is needed, according to the whitepaper, is a more thoughtful and forward-looking approach to net zero, one that gives due consideration to the context in which each country operates, its potential to contribute to the world’s collective net-zero ambition, and its specific transition pathway.
A successful net-zero transition, the whitepaper states, requires swift action and adaptations in many areas, including regulation, consumer habits, technology and – most pertinently for investors – capital allocation.
“The first step... for investors to get better at assessing whether an investment or portfolio is aligned with a credible net-zero pathway that works for all of the world’s 7.9 billion people,” says Peter Eerdmans, Ninety One’s head of fixed income. “Investors need better measures to decide what is the right and fair way to build net-zero-aligned portfolios.
The Net Zero Sovereign Index, which covers 115 countries across emerging and developed markets, is a response to these issues. It is the first index that incorporates the full range of emerging markets and builds on the Climate & Nature Sovereign Index (launched in 2020). It aims to support sovereign-bond investors’ engagements with governments, so that they can hold public officials to account and encourage positive change.
“We developed the Net Zero Sovereign Index to address the growing need among asset owners and managers for the means to show that their sovereign bond portfolios are Paris-aligned and on a credible path to net zero," Eerdmans notes. "We believe the index provides greater capacity to support a fair transition for emerging markets and will help sovereign-debt investors hold governments to account for their climate policies and actions.”