Edward Dixon, head of responsible investments at Aviva Investors Real Assets, responds to New Private Markets’ recent Friday Letter ‘You can’t decarbonise real assets without real data‘, in which we asked why so many investors (56 percent) were “unsure or lacking confidence” in their ability to meet their long-term net-zero and sustainability commitments. He says:
Quoting Ray Dalio’s principle: “If you’re not worried, you need to worry… and if you’re worried, you don’t need to worry.” A target as big and as audacious as net zero should be one we should all worry about not meeting. There needs to be a systems change tantamount to the industrial revolution and that is quite a daunting challenge to overcome.
On the specific question that shows over half of respondents lack confidence they will meet their own commitments: we don’t ask for a rationale behind their opinion, so anything we say here is based only on our intuition. However, the study does highlight that over half of respondents are uncertain or not confident about the actions needed to meet their net-zero ambitions through real assets.
The answer here is relatively straightforward: it requires originating lower-carbon intensity assets, creating sustainability linkage to ensure every asset you onboard is on a journey, and engaging with your back book of borrowers, portfolio companies and supply chain to bring down the carbon intensity of your existing assets.
Of course, there’s a lot of detail to be worked through, and risks to be taken, but fundamentally LPs can and should be pressuring their GPs to deliver results. The lack of data cannot be an excuse for not getting started.
LPs and GPs can decide now to stop financing carbon-intensive sectors, and instead put cash to work in renewables or greener buildings.