Money Managers Make Climate Pledge
This week, we talk about how some major investment houses plan to make their portfolios carbon neutral.
Welcome to our weekly chat about the environmental and social issues that influence the way we work, spend our money and live our lives. We're your hosts, Maitane Sardon and Dieter Holger. Want to get our newsletter every Wednesday? Hit the subscribe button in the upper right corner and please share with your friends!
Hi Dieter! This year we’ve seen many of the world’s largest companies set ambitious climate plans and net-zero targets aimed at removing from the atmosphere as much greenhouse gas as they emit by 2050 or earlier. They’re doing it to mitigate the risk of climate change on their businesses and in response to pressure from regulators and environmentally conscious consumers. What have you seen at the investor level?
One of the biggest headlines late last week was a promise by a group of asset managers to make their investment portfolios reach net-zero greenhouse-gas emissions by 2050. The group oversees more than $9 trillion of the world’s assets and includes some of Europe’s largest money managers. Canada’s Bank of Montreal Global Asset Management, the U.S.’s Wellington Management in North America and Japan’s Asset Management One also signed on.
The investors said they would set interim targets in line with achieving net-zero emissions by 2050 or sooner. The targets will have to be set within the next year and reviewed every five years, with the aim to have all of their assets under management eventually included.
Their decision has implications for businesses globally as, although the investors didn’t specify the consequences for the companies they hold, it means they are going to put more pressure on big polluters and would have to eventually remove the laggards from their portfolios if they are to meet the target.
It definitely does! National and regional governments are also going green. Did you know half of all U.S. states have made net-zero pledges so far? And last week, New York state’s $226 billion pension fund, which provides pensions for more than 1.16 million working and retired state government employees and beneficiaries, also pledged net-zero emissions by 2040.
We’ll keep an eye on this to see if the number of big investors and small- and medium-sized businesses that make climate plans increases in 2021. Large companies have a bigger carbon footprint, but they can also devote more resources to collecting and reporting sustainability data, the starting point to setting numerical targets and designing a strategy.
Speaking about small companies, I read small-cap stocks surged past their larger peers this year. The Russell 2000 small-cap index had its best-ever month in November and continued to rise in December. Recent gains in the shares of Spirit Airlines, Macy’s and Denny’s helped lift the benchmark.
What am I looking at? The chart above shows the performance of the S&P 500 and the Russell 2000 indexes. While the S&P 500 contains America’s largest companies, the Russell 2000 gauges the performance of smaller, more domestically focused businesses. Small-cap stocks tend to be more volatile and outperform their larger peers during economic recoveries.
Investment analysts say the stocks of smaller companies do well during recoveries, but falter in downturns. That seems to still be the case even amid the coronavirus pandemic.
Let’s see if the trend lasts. Share your thoughts below, email us or catch us on Twitter. Your words could appear in our next edition! Have a great week and remember to wash your hands.👋
Meet the team:
Elevate the Conversation is produced by the editorial teams of The Wall Street Journal and Dow Jones Newswires. Here's a little bit more about us, along with our contact information. We'd love to hear from you.
Dieter Holger, Reporter: I have a knack for uncovering values-based investing trends and I’m obsessed with spreadsheets and charts. I really enjoy ‘80s music, skateboarding and yoga (but I’m bad at both). dieter.holger@wsj.com @dieterholger
Maitane Sardon, Reporter: I have a passion for amplifying the voices of those at the center of stories. I love running on Barcelona’s beaches and binging on chocolate ice-cream to compensate (it’s all about balance). maitane.sardon@wsj.com @sardonmaitane
Catherine Lindsay, Editor: I like breaking down complex ideas and explaining them. On the weekend, you’ll find me wandering the city with my film camera at the ready. catherine.lindsay@wsj.com @CathsLindsay
Tammy Lian, Designer: As a visual producer, I'm always excited by the challenge of creative problem solving. In my spare time, you can usually find me taking care of my ever-growing collection of plants and drinking tea. tammy.lian@wsj.com @violian.tammy