A huge number of asset managers have made public commitments to aligning their assets under management (AUM) with a net-zero economy. Over 270 investors are now signatories to the Net Zero Asset Managers initiative and over a third of global market capitalisation is covered by Science Based Targets initiative (SBTi) pledges.


However, the credibility of these promises very much depends on how these intentions are translated into tangible actions. That is, how asset managers measure where they are at currently, and how they set out the pathways to their goals.

Climate change, though, is an inherently complex problem which can’t be measured by a single metric.

A complex problem

Limiting the rate of global warming, requires a deep and immediate reduction in greenhouse gas emissions. Accordingly, the defining metric for guiding net-zero transition in managed assets has (to date) predominately been based on quantifying and reducing a portfolio’s overall carbon emissions – that is, estimating the overall carbon footprint generated by a portfolio’s underlying assets and using this data to decrease the carbon emissions of AUM over time.

Climate change, though, is an inherently complex problem which can’t be measured by a single metric. As such, I believe decarbonisation alone is too simplistic a measure to properly guide investment and allocation decisions over the long term. What’s more, if we are to accelerate our climate ambitions, we need to recognise that carbon emissions are at best a blunt tool for portfolio management which, if used incorrectly, can even slow progress towards net zero.

Climate Matters

Our Climate Matters publication features a foreword from COP26 President, The Rt Hon Alok Sharma MP, and articles from our Head of Climate and ESG Capital Markets, Caroline Haas on carbon credits, as well as our Head of Climate James Close on what drives his passion for climate change. 

Read now (PDF 3.9MB)

Never the whole story

Emissions data inevitably never tells the whole story. By its nature, it is backward looking and is therefore only evidence of what has already happened, rather than of future outcomes. For example, the data cannot recognise the operational or structural transformations which may shift companies from being lower emitters to higher emitters, simply because that information has yet to be recorded.

Likewise, solely referencing carbon emissions can also introduce unintended bias, potentially prompting a concentration of investment (and risk) in historically lower-emitting sectors and industries. This also fails to acknowledge that different sectors will reduce emissions at different speeds and can effectively limit necessary portfolio diversification and returns.

The data also misses genuine efforts made by companies towards reaching net-zero targets and can give a false impression of future climate impact. For instance, take a business which has made significant progress in reducing emissions against its own baseline, but is still higher than the global average. Using a purely emissions-based approach, that business will appear comparatively worse than a company which has lower-than-average emissions but which is increasing its carbon output. Importantly, these factors can result in a crucial misallocation of capital from a climate perspective – inadvertently rewarding emitters rather than incentivising positive transition momentum.

The importance of portfolio alignment

Because of this, in my view an approach to portfolio climate measurement beyond a one-dimensional view of decarbonisation is crucial. We therefore combine both decarbonisation and portfolio alignment targets to help us track progress on different levels of our investment process, with both needing to move in the same direction to achieve real results.

By recognising climate progress already made and forward-looking targets set by the asset managers we work with, we build a holistic view of portfolio alignment, which is vital for identifying and influencing emissions reductions in the real economy.

Our portfolio alignment target is designed to work with our investment process, by measuring how funds are incorporating net zero into their investment process. This means that we have direct control over whether we select a fund that is aligned to net zero, and we have the ability to influence our existing fund managers to start incorporating net zero.

An example of this would be an environmentally focused fund which aims to select companies that are enabling the transition to a net-zero economy, but has a high carbon intensity due to the sectors these companies are in. If our Fund Research team is confident that this fund is aligning with net zero (according to our Coutts Net Zero Investment Framework), this fund should decarbonise over time regardless of its current carbon intensity.

Enabling pragmatism

Portfolio alignment measurement also enables a degree of pragmatism in our approach. We recognise that the carbon intensity of portfolios will not always reduce quarterly and there will be periods where we experience an increase in our portfolio carbon intensity.

This can be because of market movements, such as a rotation from growth into value stocks, or because we take a tactical asset allocation into markets or themes with a higher-than-benchmark carbon intensity. Portfolio alignment measurement therefore provides us with the invaluable analytical counterpoint to know if we are moving in the right direction, despite increased carbon intensity during these periods.

A pivotal role

Asset managers can play an undeniably pivotal role in the transition to net zero. With trillions of dollars of capital under their stewardship, the way the industry manages these assets will be a crucial determinant in whether the goals of the Paris Agreement are achieved, or not.

I believe that only by employing both backward and forward-looking analytics and using these measures to set interim science-based targets can asset managers fully ensure that they maintain a credible path towards helping achieve a net-zero economy by 2050.

NatWest Group aims to reach net-zero emissions across its AUM by 2050. Long-term Paris Agreement alignment of our managed funds is being delivered through an interim decarbonisation target of 50% carbon intensity reduction across AUM by 2030.

This is to ensure we are fulfilling our net-zero ambition within the required timeframes to limit global warming to 1.5ºC. In addition, we are targeting 50% of AUM to be on a net-zero trajectory by 2025, increased to 70% by 2030.

Caution about this article. The views and opinions expressed in this article are the ones of Leslie Gent and do not necessarily represent the views of the NatWest Group. This article (i) has been prepared for information and reference purposes only; (ii) is intended to provide non-exhaustive, indicative and general information only; (iii) does not purport to be comprehensive; and (iv) does not provide any form of legal, tax, investment, accounting, financial or other advice. Click here to read the full Climate Matters document that contains cautionary statements relating to this content. (PDF 3.9MB)

Please see NatWest’s 2021 Climate-related Disclosures Report for those views and other information including about our financed emissions and heightened climate-related risk sectors.



This is for media use and not a financial promotion.

Coutts’ investment in funds managed by third parties therefore means that any targets set on a Coutts level are highly dependent on selected fund managers delivering on their own targets and making all relevant information available. As an asset manager of diversified multi-asset funds and portfolios, Coutts allocates capital across different asset classes, sectors and geographies. Given the global exposure within the investments we manage, our ability to deliver on the climate-related targets set will depend on there being sufficient attractive investment opportunities that simultaneously achieve the desired climate-related outcomes. For example, a reduction in the carbon intensity of Coutts AUM is achieved through a reduction in the carbon intensity of the underlying investments. This in turn depends on the availability of suitable investment opportunities that have lower carbon intensities while providing the desired investment characteristics (such as risk, return, liquidity, etc.). Where Coutts has set ambitions to align its funds and discretionary portfolios to Net Zero, these ambitions are based on Coutts’ own assessment, judgments, estimates and assumptions and rely on third-party information that is both qualitative and quantitative, as well as public and private. Due to the current absence of global consensus around fund and company net zero alignment, Coutts’ assessment of Net Zero alignment is based on industry accepted frameworks (e.g. PAII Net Zero Investment Framework, CDP) and aim to reflect current industry best practice, as well as the recognition that certain net zero-related definitions and requirements are likely to evolve over the coming years. In this event we may revise any such ambitions, targets and commitments.

scroll to top