Less than a third (28 per cent) of global asset owners with climate-related targets set these targets at asset-class level, research from Ninety One has revealed.

It also found that nearly half (48 per cent) set them at overall portfolio level and 46 per cent set targets for specific mandates, portfolios or funds.

Three in five (60 per cent) respondents said that fighting climate change was one of their fund’s strategic objectives, while 51 per cent stated their fund had emission-reduction targets in place.

However, Ninety One noted that the findings were less positive when looking for real-world impact, as only 19 per cent said they use transition finance to any extent.

Furthermore, just 16 per cent were investing in transition-finance assets in emerging markets, the regions where emissions and populations are growing the fastest.

“ESG-branded assets are often designed to show small carbon footprints, but this sometimes means they are not addressing real-world decarbonisation,” said Ninety One chief sustainability officer, Nazmeera Moola.

“Portfolios are created that avoid the problem, instead of solving it — often, by simply limiting an investment universe to only the cleanest industries. Portfolio purity does not work to solve the climate crisis. It exacerbates the crisis.”

For 87 per cent of asset owners, no more than half of their assets under management (AUM) fall under climate-related strategies, and 46 per cent have no more than a quarter in these portfolios.

Additionally, only 11 per cent have from half to three-quarters of their AUM in climate-related strategies, and less than 1 per cent have more than three-quarters.

In the next three years, 19 per cent expect to have from half to three-quarters of their AUM in climate-related strategies, and 2 per cent will have more than three-quarters.

More than half (55 per cent) of asset owners stated their fund was not focused on any goal beyond the risk-and-return performance of their assets, with 40 per cent of asset owners believing that climate-related investing leads to lower returns.

Ninety One noted that emerging markets present an “enormous challenge – and opportunity”, with transition finance therefore “critical” to reaching net zero.

While expanding transition finance in emerging markets was a moderate or high priority for 86 per cent of those who have adopted the approach, 53 per cent of respondents said their fund was concerned about the risk-return profiles available in the universe of emerging market transition-finance assets.

Nearly half (41 per cent) of asset owners said their fund was seeking to invest in high emitters in emerging markets with measurable, science-based decarbonisation plans.

“Now is not the time for rich countries, their investors, asset owners, and institutions to abandon the emerging markets,” Moola stated.

“If an effective ‘buy developed, sell developing’ takes hold, emerging markets may be starved of investment capital at the very time they need it to finance their energy transitions. We must focus on long-term transition plans consistent with net zero by 2050 for companies and countries, not near-term portfolio emission reductions.

“Asset owners that take a divestment approach to achieve net-zero targets are letting go of some of the most powerful levers in the fight against climate change, as well as return opportunities. They have the ability to use their capital and influence to catalyse and enable transitions to low-carbon alternatives and move closer to the Paris Agreement targets — a path that can often overlap with the path to long-term growth and responsible risk management.”

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