The rate of science-based target (SBT) adoption amongst alternative investment funds (AIFs) has not increased since 2022, according to recent research from RBS International.
Only 43 per cent of AIFs have set and verified SBTs, with the remainder actively planning to set targets in the future but having unclear timeframes in place.
The findings complement a 2022 study on AIFs’ uptake of SBTs. 125 decision-makers in the AIF space, with funds domiciled in Western Europe, took part in the study, spanning the real estate, private equity, infrastructure, renewables and private debt sectors.
Increasing regulatory pressure is the main driver of SBT adoption, with 38 per cent of participants citing this growing pressure as a primary contributing factor. 41 per cent predict that this will continue, with regulators pushing for demonstrable decarbonisation commitment amid challenging economic conditions.
However, many AIFs are facing difficulties. Investor pressure and net zero initiatives were also named as catalysts for SBT adoption by 23 per cent and 15 per cent of respondents respectively. Investor commitment to sustainability and the importance of SBTs for funds are expected to prompt continued engagement with net zero strategies.
The time that it takes to implement SBTs was found to be the most significant issue for AIFs in 2022, with 48 per cent of participants placing it at the top of their list. In 2023 this reduced to 37 per cent, which RBS International says points to developing difficulties at other points in the implementation process.
This year, uncertain economic conditions were in the top three concerns of 35 per cent of respondents. These are expected to slow the progress of larger-scale projects as managers focus on day-to-day operations.
RBS International affirms that SBTs’ long-term value remains strong, despite slower adoption rates. 90 per cent of those polled expect SBTs to be important to their fund in three years’ time, an increase from 2022’s 79 per cent.
Commenting on the findings, Bradley Davidson, ESG lead at RBS International, says: “Financial institutions play a significant role in aligning private capital with global climate commitments. Regulators, investors and capital providers have continued to increase pressure to embed and evidence robust climate strategies.
“The various pressures that drive the adoption of SBTs will change over time, but the pressure remains even if the causes shift. The message is clear: funds must focus on future performance and the competitive advantage that solid climate change strategies aim to bring.”
