Net-Zero Alignment: Objectives and Strategic Approaches for Investors

Net-zero investing means implementing a decarbonization pathway for a portfolio, using its “emissions budget” to achieve a temperature scenario well below 2°C. We investigated three common approaches to net-zero investing to see whether they can have a real impact on decarbonizing the economy: 1) shifting capital from more-carbon-intensive to less-carbon-intensive investments, theoretically influencing companies’ share price, cost of capital and access to capital; 2) engaging with individual issuers directly, whether through shareholder voting or other stewardship activities to spur faster decarbonization among laggards; and 3) directing investments toward low-carbon technology. We also examined a fourth option, policy advocacy, which may affect the market as a whole.

Global Decarbonization Pathways and Remaining Emissions Budgets

Depending on the targeted temperature and the assumed shape of the decarbonization pathways, we may see different forecasts for when the world ultimately achieves net-zero emissions.