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Wood Panel

Must-haves for launching differentiated Transition funds

Updated: Nov 26, 2023

Decarbonization is one of the most important themes that will influence investing over the next several decades. The regulatory and investment industry landscape is rapidly evolving and mobilizing resources for the transition to a low-carbon future across geographies and sectors. Many investors have made commitments to reduce the climate impact of their portfolios. For example, as of December 31, 2022, 301 asset managers, with USD 59 trillion in assets under management, are signatories to the Net Zero Asset Manager (NZAM) initiative, making a commitment to achieve net zero alignment by 2050 or sooner [1].

As first steps in climate risk management, asset managers are taking stock of their existing emissions footprint, and establishing processes to regularly monitor the emissions performance of their portfolios, as well as strengthening stewardship efforts with investees - both independently and collaboratively via initiatives such as the CA 100+.

Strategically, there is also strong appetite to innovate and develop new products to service the growing market demand for climate-oriented investment opportunities; particularly "transition investing", which focuses on companies that are at the forefront of the energy transition, and represents a much broader universe than firms that are pure play climate solutions or have already achieved alignment to the Paris Agreement - i.e. investing in companies that have committed to "aligning" and/or "managed phaseouts" [2].

Given increased scrutiny of sustainable investment products and stakeholder concern over potential greenwashing, asset managers seeking to launch new funds must have a robust and transparent framework and process in place. Below we outline the must-haves needed to launch market differentiated Transition funds:

  1. Proprietary Research: In-house, in-depth research on transition performance that are defensible and transparent; reduce reliance on third party scores.

  2. Transition Analytics: Monitor emissions trends and measure ambitiousness of climate targets; understand non-climate factors that may impact transition success.

  3. Outcome Reporting: Efficient process to report progress and outcomes from portfolio; centralized engagement tracking.

  4. Deep ESG integration: Seamless collaboration between Sustainable/Responsible Investing and Investment teams; transparency in investment decision-making.

Climate change is driving fundamental changes in global energy infrastructure and usage, a reality that will propel the appetite for transition investing for many retail and institutional investors, despite current anti-ESG backlash making headlines in certain parts of the US. Asset managers that wish to develop credible Transition products as part of their climate impact toolkit in this market require a thoughtful approach, and the right “ingredients”.

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[1] Net Zero Asset Manager Initiative. Accessed 12 May 2023.

[2] GFANZ. “Financial Institution Net-zero Transition Plans - Fundamentals, Recommendations, and Guidance.” November 2022,


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