Beyond Carbon: Portfolio Strategies & Sustainable Returns

The asset management sector is undergoing a pivotal shift as it expands beyond conventional carbon metrics to embrace more comprehensive sustainability frameworks for portfolio analysis. This evolution incorporates a broader array of factors such as climate risk, resource management, energy efficiency, and supply chain resilience, which accurately reflects an organisation’s overall sustainability profile.

Asset management firms recognise that sustainability performance is a key indicator when evaluating a company's risk profile, but we see it becoming more salient in assessing an investment's growth potential. This trend aligns with forecasts from Gartner, which notes that by 2026, the majority of public companies will have integrated sustainability metrics into their return on investment (RoI) analyses. This shift marks a transition from viewing sustainability primarily as a risk management issue to embracing it as a crucial driver of financial returns.

Norges Bank Investment Management is an exemplar in the field with its rigorous approach to environmental and social due diligence. Despite being a minority investor, the bank effectively uses its influence to promote sustainable practices among its investees, adhering to international standards such as the UN Global Compact and OECD Guidelines. Their strategy includes thorough ESG risk and sustainability strategy monitoring using external data and stakeholder feedback to maintain proactive engagement and stringent oversight.

This serves to indicate how important transparency and accountability are within the new paradigm around sustainability strategies, but further work is needed to build trust with stakeholders and investors. According to data from PwC, three-quarters of investors say sustainability is important to their investment decisions, while more than half (57%) back greater clarity and consistency in sustainability reporting to nurture a culture of continual improvement and exceptional performance. Investors continue to voice significant scepticism regarding the accuracy of sustainability reporting and information, commonly criticised as "greenwashing." Notably, 94% of investors suspect that corporate sustainability reports include at least some unsupported claims.

At Pimlico Strategy & Insights, we have developed the FASTER™ and TRACK™ methodologies to address these evolving sustainability demands and concerns specifically. FASTER™ evaluates the alignment and effectiveness of sustainability strategies, ensuring they are actionable and monitored for results. TRACK™ analyses market and regulatory trends to keep businesses at the forefront of sustainability practices.

As we look towards a changing landscape, portfolio strategies constantly evolve in measuring environmental impact and material risks. Our clients collaborate with Pimlico Strategy & Insights to enhance their strategic decision-making and secure long-term environmental and financial health.

At Pimlico Strategy & Insights, we make sustainability move FASTER™.

Contact us for a consultation today.