The road to net zero: the role of transition plans and forward-looking indicators in portfolio management

Rationale This article offers a general description of the road towards an economy with zero net emissions (net zero), stressing the importance of this process in portfolio management. To this end, it reviews several of the initiatives currently under way, and details the aspects needed to prepare a transition plan and how key metrics in this context are constructed. Takeaways •The transition towards climate neutrality or net-zero goals affects every sector of the economy, including, on the finance side, investment and asset management. Collectively, individual goals will enable the ultimate global goal to be met. This will call for detailed planning, as well as the implementation of strategies integrating climate and environmental risk management. •The process of setting goals and designing transition plans is currently at the stage of development and adoption by the investment and portfolio management sector, as well as by financial institutions and other firms. •The availability of reliable, comparable data is one of the main challenges in this area. This is the key ingredient for defining and setting goals, and also for designing forward-looking metrics to track the progress made in achieving them.