As markets, governments, and industries all begin to work towards net-zero carbon emission goals by 2050, actively managed funds will have a much better chance of success than their passive counterparts, believes the CEO of Asset Management One, one of the biggest asset management firms in Japan, reports the Financial Times.
Akira Sugano, the president and CEO of AMO, thinks it’s simply a matter of logistics: Passive funds will have a much harder time reaching carbon neutrality targets because of the high level of engagement necessary for creating positive movement on emissions reductions with companies. Passive funds follow their indexes, and the amount of personnel and financial burden required to engage with every company within the larger indexes would be cost-prohibitive at best.
An alternative to being able to engage with every company within an index would be to buy carbon offsets to balance the emissions of the fund, a “trick” that Sugano views as failing to drive change, and one that can end up driving fund expenses up.
The COP26 climate summit earlier this month saw several initiatives and resolutions being passed that were geared towards improving the carbon footprints of portfolios, and regulators are putting increasing pressure on the financial industry and asset managers to only invest in companies with solid ESG performance and carbon emission reductions in place.
“How many people would you need to support a Russell 3000 benchmark, and talk to every single company you own and every finance team,” said Jonathan Doolan, managing partner at Indefi, an asset management consultancy.
Because active managers are able to tailor their funds when needed, they would naturally be able to pivot more easily to meet carbon-neutral goals for portfolios. They would be able to invest in companies in a manner which still left room for engagement for all securities contained within the fund, helping to further drive change and increase net-zero carbon neutrality efforts.
Active management is poised favorably moving into an ESG- and emissions-focused global economy moving forward. T. Rowe Price, an active management firm, currently offers eight actively managed ETFs with a variety of strategies for investors to align their risk exposures and investment goals.
The firm brings a bevy of experience and research to its products, with portfolio managers averaging over 20 years in investing each, as well as over 400 investment professionals dedicated to researching companies within ETFs.
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