Earth Day 2022: Investing in a Net Zero Future

Chris Ito

Chris Ito

CEO, FFI Advisors

Michael Palmieri

Michael Palmieri

CEO, FFI Solutions

With Earth Day upon us, the theme this year is Invest in our Planet™. Event organizers have made it clear that all facets of our society must take action to tackle the challenges of climate change—this includes the business world, government authorities, and most certainly, the investment community.

This mission could not be closer to our hearts. At FFI Solutions and FFI Advisors, we are focused on working with investors—both asset owners and asset managers—to determine their optimal approach in transitioning portfolios to Net Zero.

This is reflected in our nearly 10-year commitment to decarbonize, as evidenced by our industry-recognized The Carbon Underground 200™.

We also take comfort in seeing that the groundswell for change is afoot. According to the UN’s Race to Zero, each year the number of participants significantly grows. The most recent data indicates that its coalition of Net Zero initiatives represents 1,049 cities, 67 regions, 5,235 businesses, 441 of the biggest investors, and 1,039 Higher Education Institutions. These ‘real economy’ actors join 120 countries in the largest ever alliance committed to achieve Net Zero carbon emissions by 2050.

That said, we recognize that Net Zero is not just a destination, it’s a journey. Much groundwork has been laid. Various think tanks, investor led initiatives and commercial organizations have proposed frameworks and developed industry focused research on transition risks and opportunities. The challenge that many market participants face is how to turn data, research and analytics into pragmatic solutions that address fiduciary needs, operational constraints and stakeholder preferences. 

On any given path to Net Zero, investors can use a combination of investment, divestment, shareholder engagement and carbon offset strategies to achieve their goals. For example: 

  • Investing in climate solutions, including clean energy and associated infrastructure, presents an opportunity to capture superior returns as the world transitions to renewables
  • Selectively divesting from companies or industries that are not aligned with a low-carbon economy will help investors to align with their values and manage transition risks
  • Engaging companies to enhance disclosure and reduce their carbon footprint should result in a lower risk exposure to carbon pricing and potentially a higher valuation as those risks become priced into the market
  • And funding carbon removal projects through verified offsets provides a way to reduce a portfolio’s carbon footprint and impact real-world decarbonization

There is no-one-size-fits all solution to Net Zero, and not every strategy will immediately ensure the cleaner and healthier world that is the essence of Earth Day. Rather, the journey to Net Zero will be different for each investor with data, research, measurement standards and best practices, continuing to evolve.

While this evolution creates challenges, the urgency to act is clear. ​​​​​We are optimistic that financial market participants will find their clear path and Invest in our Planet, because as we have been advocating, there is no Planet B.