The Net Zero Investment Framework in action: Evenlode Investment

Originally published by IIGCC

How does the Net Zero Investment Framework (NZIF) support investors? We spoke to Sawan Kumar, Bethan Rose, and Rebekah Nash from Evenlode Investment to explore how they’ve used NZIF to evolve the asset manager’s net zero strategy.

The four Net Zero Investment Framework targets are:

  1. Portfolio coverage target
  2. Portfolio decarbonisation reference target
  3. Engagement threshold target
  4. Allocation to climate solutions target

Early into our conversation, it’s clear that Evenlode Investment is a close-knit team. The Oxfordshire-based asset manager has around 40 employees managing more than USD 6 billion in assets under management (AUM), with plans to scale in the coming years.

Evenlode joined the Net Zero Asset Managers (NZAM) initiative in June 2021, committing to reach net zero by 2050 or sooner across 100% of its investments. And like the majority of investors who have made a net zero commitment, the team decided to use the Net Zero Investment Framework.

“Upon reviewing NZIF, it appeared to be the most suitable option for us and aligned well with our investment process,” said Sawan Kumar, Evenlode’s Head of Stewardship. He explained that as an equity-only investor with a simple investment process across three funds, NZIF’s open-source approach and focus on engagement was a good match.

Pictured (L-R): Sawan Kumar, Bethan Rose, Rebekah Nash

Establishing a baseline

Early on, the team agreed to work towards a portfolio coverage target that covered 100% of material assets under management. But first, they had to establish a baseline.

“Using SBTi [Science Based Targets initiative] data we established a baseline in the 20-25% range,” Bethan Rose, Evenlode’s Sustainable Investment Analyst told us. This meant that around 24% of assets under management in material sectors could already be considered to be aligning, aligned, or achieving net zero under NZIF’s alignment maturity scale.

From there, the team considered the target – what should they expect to see from companies? This involved working closely with Evenlode’s fund managers, who were supportive of a target that was an ‘adequate challenge but also achievable.’

Bethan outlined the consensus: “A net zero target and supporting underlying targets of 50% of AUM in material sectors to be aligning, aligned or achieving net zero by 2025, and 100% by 2030.” This is coupled with a decarbonisation target of 50% by 2030 to meet NZAM requirements.

NZIF encourages asset managers and asset owners to start with publicly available company data when assessing asset alignment, often benchmarked by Climate Action 100+ or the Transition Pathway Initiative, to build the most accurate picture possible.

“We had to be very careful when setting our baseline,” Sawan added, “from there, we felt we were at a point where a lot of companies were close to achieving the next categorisation. This gave us enough comfort to set the target.”

“An adequate challenge but also achievable.”

Once agreed, each target was incorporated into the Evenlode internal workflow system, known as EDDIE, which serves as an internal depository of all investment research and engagements.

“We do our own emissions analysis using CDP data, targeting our engagement towards the highest emitters,” explained Sawan, referring to NZIF’s portfolio engagement target: “All that data has been integrated into EDDIE. Whenever a manager invests in a holding, the modelling tool indicates the change in the fund’s emission intensity.”

Assessing Scope 3

Evenlode is one of a few asset managers that has included Scope 3 emissions in its portfolio decarbonisation reference target, aiming for a 51.6% reduction in emissions per £10k invested across scopes 1, 2, and 3 by 2030.

The decision to use emissions intensity, rather than absolute emissions, reflects the firm’s AUM growth trajectory.

Asked how they managed it, Bethan explained that the team had already been conducting carbon emissions analysis before setting the target. The number of companies sharing Scope 3 data was also increasing every year.

“Lots of companies are disclosing emissions in their value chain and for those that aren’t we can use estimates – we should be making an effort in trying to calculate the data, instead of saying the data isn’t good enough,” she said.

Around three-quarters of Evenlode-held companies now report 90% or more of their Scope 3, and for the remainder, the team use CDP data modelling combined with their own analysis.

Importantly the Evenlode ethos is to get the ball rolling: “The Scope 3 emission estimates don’t need to be 100% accurate,” Sawan confirmed, “as long as we’re happy with our methodology – it is a model and an estimation.”

“We should be making an effort in trying to calculate the data, instead of saying the data isn’t good enough.”

Meaningful climate solutions

Notably absent from an otherwise comprehensive set of targets is a proportion of AUM committed to climate solutions, which is sometimes the most challenging target for investors. The team have been considering the target, but want to create something that is as ‘impactful as it can be.’

Rebekah Nash, Evenlode Governance Analyst, pointed to the asset manager’s employee-funded Foundation. Each year, 20% of company profits are voluntarily donated and divided 3:1 between an innovation and charities fund.

The innovation fund supports start-ups in sectors including sustainability, science, and education, while the charities fund donates to a mix of global and local charities covering everything from climate to healthcare: “We want to contribute to global causes as well as the local community,” Rebekah said.

If this model was expanded to include climate solutions work, Evenlode could count it towards a climate solutions target if all funding came from its assets under management. IIGCC’s new guidance on climate solutions helps investors to better understand this target and how they can adapt it to their strategies.

Despite all this progress in a short period of time, the team remain realistic about the challenge of moving from commitment to implementation given their investing strategy and asset profile.

And the big question – has this comprehensive approach to net zero helped to win clients? “It’s hard to say,” Sawan laughs, before stressing that setting a commitment is about much more than that:

“We look at ESG as a way to manage long-term risk – we would like to think if we’re managing it appropriately that leads to better performance and opportunities.”