RBS International has revealed the results of new research which looks to better understand the extent to which alternative investment funds (AIFs) are implementing science-based targets.
The banking provider surveyed 125 “key influencers” between February and March this year on decisions relating to investment strategy in AIFs. It also interviewed six industry experts across a range of sectors.
The sample covered funds domiciled in the UK, Jersey, Luxembourg, Guernsey and other Western European countries across the areas of real estate, private equity, infrastructure, renewables and private debt.
Pictured: The COP26 United Nations climate change conference took place in Glasgow last year.
The Science-Based Target Initiative was launched in 2015 to mobilise the private sector to take climate action seriously and set standards that companies could adhere to in their journey towards net zero.
Since then, COP26 has underlined the investment gap in climate initiatives and called upon banks and other financial institutions to invest in the transition to net zero.
Science-based targets are poised to become the leading framework in the sustainable finance space. However, according to the research, less than half of AIFs currently implement such targets.
Despite this, almost three quarters of survey respondents agreed that the financial sector must set clear targets for achieving net zero and 35% believe that regulatory pressure is the primary driver for adopting science-based targets.
Investors are also increasingly looking for clear evidence that fund managers are pursuing science-based targets, with more than three quarters of respondents saying that investors are looking for clear evidence that funds are setting the targets.
Pictured: RBS International ESG Lead, Bradley Davidson.
Although setting science-based targets remains voluntary, RBS noted that “peer pressure and net zero initiatives are also becoming a force to be reckoned with”. Almost a quarter of respondents said this was playing into their decision to adopt science-based targets.
Bank/lender pressure was cited as another important factor, as many institutions have made public commitments to exit customers who fail to decarbonise or set robust net zero targets.
Despite the survey results showing that eight out of ten respondents said science-based targets are important to their fund, and over half considering them important, less than half implement them.
RBS said that the results reveal that a lack of in-house skills or expertise is a key obstacle for funds, with almost half ranking this within their top three barriers to setting SBTs within their firm. Implementation time and measurement difficulties also appear in the top three barriers.
“While many AIFs see clear benefits from implementing science-based targets, results highlight how they lack the technical knowhow to implement these in practice,” said the company.
“From this, it seems that investing in the right resource, whether internal or external, will be crucial to the successful adoption and implementation of science-based targets.”
Pictured: Sustainable finance and the transition to net zero is high on the agenda for businesses.
The results also showed that all respondents would value third-party support, with most looking to seek expertise outside of their organisation, whether from a consultant or another third party including their lenders.
ESG Lead, Bradley Davidson, said: “As a financial institution, we face many of the same challenges as funds, and if understanding our path can help you to map out your own, we encourage you to reach out.
“Our research has highlighted the appetite for adopting science-based targets across all sectors, but it also lays bare the barriers AIFs must first navigate.
“Collaboration sits at the centre of our purpose-led strategy, and we want to have open dialogues with our customers to make this journey smoother and more successful for them.
“We’re encouraged by the increasing depth of our discussions and look forward to working with our customers and peers to set clear and meaningful targets that support the transition to a net zero economy.”
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