At a recent Net Zero event held by Oxford University, Hubert Keller, a Managing Partner at Lombard Odier highlighted how he believes that the climate transition will disrupt 90 to 95 percent of the investment universe. Keller’s assessment of the current ESG framework that asset managers adhere to, is that only the current ‘footprint’ of a company is assessed, rather than analysing whether a business is involving itself in sustainable activities. As a result, most companies can label themselves as sustainable, which in turn allows asset manages to label their products as ESG compliant.

The EU is looking to address allegations of greenwashing via the introduction of a new ESG framework, defining clearer specifications for what business activities align with their Net Zero ambitions. Investors will then have to demonstrate how their portfolios meet the guidelines. Keller points out that a clearer framework will shrink the number of companies that are suitable for investment. This is matched in a recent study conducted by abrdn, with the firm estimating that the global equities investment universe could be reduced to 2 percent. There is no doubt that clearer frameworks will steer us in the correct direction, but asset managers will have to use their own due diligence when analysing a business’s Net Zero plan before investing.