In this article, Paul Vozzella, Director of Americas at Asset Impact, shares five key reasons why fixed income managers should make asset-based data a cornerstone of their net zero strategy.
What is asset-based data?
Asset Impact’s asset-based data provides a detailed view of a portfolio's climate footprint by connecting individual underlying assets like coal mines, power plants, and ships to their corporate owners and the securities they issue. This approach offers detailed, real-world insights that help asset managers make informed decisions. Click here to learn more about the approach.
1. Enhance transition risk management
From a transition risk standpoint, the increased importance of asset-based data has never been clearer. Where asset-heavy sectors such as power, oil and gas, automotive and industrials are facing technological disruption and public policy changes, increasing the likelihood of assets becoming stranded. Fixed income managers who go beyond corporate-level disclosures and evaluate companies based on the individual assets they own and operate in the real economy will be well positioned to navigate the ever-evolving risk climate change presents to bond portfolios.
2. Assess carbon transition readiness
Understanding where a company is directing its capital expenditures (capex) provides critical insights into its growth trajectory and commitment to the low carbon transition. Asset-based data helps fixed income managers evaluate the capital allocation alignment and decarbonization pathway for issuers in each region and sector in which they operate. Ensuring they have the insights to properly assess an issuer’s progress and potential to reduce emissions within their operations.
3. Take an active approach
In a rapidly evolving market, having up-to-date data is critical. Asset-based data offers granular insights, ensuring that portfolios remain responsive to asset-level technology shifts such as the switch from a blast furnace to an electric arc furnace (EAF) at a steel mill or the decrease or halt in production of EV’s at an automakers manufacturing plant. All of which can impact a portfolio's ability to achieve both short- and long-term carbon reduction targets.
4. Engagement 2.0
Engagement with issuers is one of the key pillars of most fixed income managers' investment process. With asset-based data, fixed income managers can identify hidden opportunities and risks to further engage with issuers. Fostering an open dialogue with issuers on how they can adopt and implement climate solutions to reduce emissions taking into consideration each individual asset’s operating environment, useful life, and other characteristics.
5. Build Client Confidence
Asset owners are increasingly prioritizing transparency around climate and sustainability-related activities, particularly in the U.S., where demand for responsible investment products is rising. By focusing on the actual physical assets that drive emissions, asset-based data gives investors a clearer, unbiased view of their investments’ environmental impacts. Helping to build trust and ensure fixed income managers meet the requirements laid out in institutional investment mandates.
Click here to learn more about our data in action, with examples from the California Department of Insurance, BBVA, and KLP.