Net-zero investing is a financial response to global warming that is driven by the need to reduce greenhouse gas (GHG) emissions. Historically, the Earth’s climate has changed slowly, with a cooling trend that reversed about 200 years ago. Since then, industrialization and rising global living standards have increased GHG levels, leading to a more than 1°C rise in global temperatures. This climate shift presents both risks and opportunities for investors.

Innovations Toward Achieving Net Zero: Voices of Influence brings together insights from leading academics and industry professionals. It aims to advance understanding and practice in net-zero investing to help the financial sector play a vital role in the reduction of global GHG emissions.

The primary risk of global warming lies in its disruption to economic infrastructure, which was built with the assumption of a stable climate. As the climate deviates from historical norms, economic productivity and efficiency may decline. Investors are now assessing how climate change affects companies’ physical assets, profitability, and cash flow. They are also considering the impacts of government regulations, taxes, and spending aimed at climate mitigation and adaptation.

A smaller group of investors is actively working to mitigate global warming through net-zero investing. This approach seeks to reduce human-caused GHG emissions to net zero while also generating financial returns. Net-zero investing has evolved since the first guidance was published in 2020. It encompasses three key components: risk management, portfolio alignment, and real-world decarbonization:

• Risk management focuses on physical and transition risks from climate change.
• Portfolio alignment involves building a portfolio that adheres to a decarbonization path toward net zero.
• Real-world decarbonization directs capital toward projects and policies that promote GHG reduction.

While all net-zero investors share the same goal, they emphasize different aspects of risk management, portfolio alignment, and decarbonization, depending on their objectives, timelines, and regulatory environments. This diversity has led to various approaches within the framework of net-zero investing, including climate benchmarks, scenario analysis, and system-level investing.

Investment Innovations Toward Achieving Net Zero: Voices of Influence is a compilation of ideas about net-zero investing from thought leaders in academia and industry. As the global association of investment professionals, with nearly 200,000 charterholders across 160 markets, it is the privilege of CFA Institute to convene experts and practitioners to help advance industry theory and practice.

Author

Chris Fidler, Head of Global Industry Standards, CFA Institute