A multi-asset approach to navigating net zero

We focus on the practical implications of moving from climate pledges to practice for multi-asset investors. Aligning multi-asset portfolios to net zero comes with unique challenges and is achieved by evolving the integration of ESG considerations into the investment process.

Multi-asset investors: Moving from climate pledges to practice

The Paris Agreement seeks to reduce emissions to limit the global temperature increase. This is often equated to transitioning to a “net zero” global economy by 2050. Investors globally are focusing on decarbonization. In March 2021, 22 asset owners with US$1.2 trillion in assets committed to cutting their portfolios’ carbon emissions to net zero by 2050.1 Because so few companies are currently aligned to net zero, we believe it’s impractical to build a diversified net zero portfolio. Rather, aligning a portfolio requires a multi-year pathway. Despite potential benefits to those who are early to the era of climate investing, aligning multi-asset portfolios to net zero comes with unique challenges and is achieved by evolving the integration of ESG considerations into the investment process. A framework is, therefore, our preferred approach as opposed to a single investment decision. This framework should facilitate change but be flexible enough to adapt to the portfolio’s progress in meeting decarbonization targets.

Key points


Different carbon metrics have different uses for investors

We evaluate various approaches to forward-looking metrics and identify an approximate “decarbonization rate” at the asset class level for multi-asset portfolio constructors.


Interim milestones are important

The portfolio pathway to 2050 is long. We propose incorporating interim milestones and conducting annual reviews to ensure the portfolio is evolving consistent with its chosen pathway or adapt as needed.


Implementation can draw on diversified building blocks

Strategies that align with the Paris Agreement can include building blocks across index, factor and alpha-seeking strategies. We propose re-allocating to certain asset classes with more explicit climate goals.

Carbon metrics across asset classes

To build a portfolio that is aligned to the objectives of the Paris Agreement, we start by assessing various carbon metrics including absolute emissions and emissions intensity. For illustrative purposes, we review absolute emissions and emissions relative to enterprise value for a strategic asset allocation for a UK Defined Contribution pension scheme. We find that the two approaches are complementary. One striking observation is the absolute emissions. Getting this to net zero is a huge task. Intensity allows a more considered view as it adjusts for the size of the underlying companies on a like-for-like basis. We also observe some key implications for multi-asset investors: firstly, no asset class is the same. Different asset classes will have different pathways. Emerging markets, for example, are associated with a higher emissions intensity than developed markets. However, these carbon metrics should serve as a monitoring function rather than an input to dictate investment decisions. these metrics only show part of the picture: a historic snapshot of how these asset classes look today and therefore what the starting point is for the investor. We therefore advocate the use of these metrics for reporting and monitoring purposes. Using forward-looking metrics alongside these will be crucial in the design of the investment strategy.

Quotation start

A growing number of companies are publishing plans to decarbonize. Reflecting this view in portfolios can help us map the expected pathway of the portfolio and compare this to the pathway required by the Paris Agreement.

Quotation end

Evolving portfolio monitoring to include “decarbonization milestones”

The design of an overarching strategy to align with the Paris Agreement will vary as a function of the portfolio’s asset allocation and investors’ different risk/return objectives. Therefore, there will be no “one size fits all” approach, although there is a common framework that multi-asset investors can apply to their portfolios. Firstly, we advocate setting interim milestones between now and 2050. The Net Zero Asset Managers Initiative, for example, has proposed setting interim targets for 2030 in order to reduce the uncertainty associated with achieving the appropriate “decarbonization pathway”. We also propose an annual review to ensure the portfolio is on track. This will be in part to ensure that companies who have set targets are meeting them and if not, to set a remediation process (such as through engaging with the company). It is also an opportunity to monitor whether there are new companies setting targets, since this may increase the level of confidence that the decarbonization rate can be met at the overall asset class level.

An implementation plan that assesses a range of building blocks

In order to build diversified portfolios, we blend index, factor and alpha-seeking strategies. Each building block has its own characteristics and complements the others. Investors can select building blocks that explicitly align with the Paris Agreement. Understanding how each asset class fares today and combining that with forward-looking decarbonization rates guides investors towards which asset classes are most crucial to replace today. Those that are not replaced may still be influenced by a clear voting and engagement policy. We use indexes in portfolio construction to access broad market exposures in a cost-efficient manner. Some screened approaches that eliminate exposure to certain business areas or optimization strategies that seek to enhance the sustainable features within a stated tracking error. Next, factor portfolios invest in broad and persistent drivers of return. Like indexes, factor portfolios can align to the Paris Agreement by systematically incorporating minimum standards for decarbonization and more. Finally, we can use alpha-seeking strategies to access exposures which contribute to the transition with the benefit of potentially brining emissions down and generating alpha.

Download full report: A multi-asset approach to navigating net zero
In this report, we advocate for a clear framework to design multi-asset investment strategies that align with the Paris Agreement.
Report cover
Yasmin Meissner, CFA
Co-Head of Sustainable Investing for Multi-Asset Strategies and Solutions
Katharina Schwaiger, PhD
Co-Head of Sustainable Investing for Multi-Asset Strategies and Solutions
Dom Byrne, CAIA
Lead Investment Strategist for EMEA Retirement Solutions
Anoushka Bhatiani
Multi-Asset Portfolio Management

1. Institutional Investors Group on Climate Change, March 2021.


Capital at risk: The value of investments and the income from them can fall as well as rise and are not guaranteed. The investor may not get back the amount originally invested. Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy. Changes in the rates of exchange between currencies may cause the value of investments to diminish or increase. Fluctuation may be particularly marked in the case of a higher volatility fund and the value of an investment may fall suddenly and substantially. Levels and basis of taxation may change from time to time. Asset allocation and diversification strategies do not guarantee profit and may not protect against loss.


This material is provided for informational purposes only and does not constitute a solicitation in any jurisdiction in which such solicitation is unlawful or to any person to whom it is unlawful. Moreover, it neither constitutes an offer to enter into an investment agreement with the recipient of this document nor an invitation to respond to it by making an offer to enter into an investment agreement. This material is not intended to be relied upon as a forecast, research or investment advice and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy.


Opinions and estimates offered herein constitute the judgment of BlackRock and are subject to change. All opinions and estimates are based on assumptions, all of which are difficult to predict and many of which are beyond the control of BlackRock. In addition, any calculations used to generate the estimates were not prepared with a view towards public disclosure or compliance with any published guidelines. The information and opinions contained in this material are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. Reliance upon information in this material is at the sole discretion of the reader.


This material may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections, forecasts, estimates of yields or returns and proposed or expected portfolio composition. No representation is made that the performance presented will be achieved, or that every assumption made in achieving, calculating or presenting either the forward-looking information or the historical performance information herein has been considered or stated in preparing this material. Any changes to assumptions that may have been made in preparing this material could have a material impact on the investment returns that are presented herein by way of example.


The environmental, social and governance (“ESG”) considerations discussed herein may affect an investment team’s decision to invest in certain companies or industries from time to time. Results may differ from portfolios that do not apply similar ESG considerations to their investment process.


Important information


This material is for distribution to Professional Clients (as defined by the Financial Conduct Authority or MiFID Rules) only and should not be relied upon by any other persons.


In the UK and Non-European Economic Area (EEA) countries: this is Issued by BlackRock Investment Management (UK) Limited, authorised and regulated by the Financial Conduct Authority. Registered office: 12 Throgmorton Avenue, London, EC2N 2DL. Tel: + 44 (0)20 7743 3000. Registered in England and Wales No. 02020394. For your protection telephone calls are usually recorded. Please refer to the Financial Conduct Authority website for a list of authorised activities conducted by BlackRock.


In the European Economic Area (EEA): this is Issued by BlackRock (Netherlands) B.V. is authorised and regulated by the Netherlands Authority for the Financial Markets. Registered office Amstelplein 1, 1096 HA, Amsterdam, Tel: 020 – 549 5200, Tel: 31-20-549-5200. Trade Register No. 17068311 For your protection telephone calls are usually recorded.


For qualified investors in Switzerland: This document is marketing material. Until 31 December 2021, this document shall be exclusively made available to, and directed at, qualified investors as defined in the Swiss Collective Investment Schemes Act of 23 June 2006 (“CISA”), as amended. From 1 January 2022, this document shall be exclusively made available to, and directed at, qualified investors as defined in Article 10 (3) of the CISA of 23 June 2006, as amended, at the exclusion of qualified investors with an opting-out pursuant to Art. 5 (1) of the Swiss Federal Act on Financial Services ("FinSA"). For information on art. 8 / 9 Financial Services Act (FinSA) and on your client segmentation under art. 4 FinSA, please see the following website: www.blackrock.com/finsa.


For Investors in Israel: BlackRock Investment Management (UK) Limited is not licensed under Israel’s Regulation of Investment Advice, Investment Marketing and Portfolio Management Law, 5755-1995 (the “Advice Law”), nor does it carry insurance thereunder.


In the U.S., this material is for Institutional use only – not for public distribution.


In Canada, this material is intended for permitted clients only, is for educational purposes only, does not constitute investment advice and should not be construed as a solicitation or offering of units of any fund or other security in any jurisdiction. trademarks are those of their respective owners, used with permission. MASH0821U/M-1755285-12/13


In Hong Kong, this material is issued by BlackRock Asset Management North Asia Limited and has not been reviewed by the Securities and Futures Commission of Hong Kong. This material is for distribution to “Professional Investors” (as defined in the Securities and Futures Ordinance (Cap.571 of the laws of Hong Kong) and any rules made under that ordinance.) and should not be relied upon by any other persons or redistributed to retail clients in Hong Kong.


In Singapore, this document is provided by BlackRock (Singapore) Limited (company registration number:200010143N) for use only with institutional investors as defined in Section 4A of the Securities and Futures Act, Chapter 289 of Singapore. This advertisement or publication has not been reviewed by the Monetary Authority of Singapore.


In Korea, this information is issued by BlackRock Investment (Korea) Limited. This material is for distribution to the Qualified Professional Investors (as defined in the Financial Investment Services and Capital Market Act and its subregulations) and for information or educational purposes only, and does not constitute investment advice or an offer or solicitation to purchase or sells in any securities or any investment strategies.


In Taiwan, independently operated by BlackRock Investment Management (Taiwan) Limited. Address: 28F., No. 100, Songren Rd., Xinyi Dist., Taipei City 110, Taiwan. Tel: (02)23261600.


In China, this material may not be distributed to individuals resident in the People’s Republic of China (“PRC”, for such purposes, excluding Hong Kong, Macau and Taiwan) or entities registered in the PRC unless such parties have received all the required PRC government approvals to participate in any investment or receive any investment advisory or investment management services.


Issued by BlackRock Investment Management (Australia) Limited ABN 13 006 165 975, AFSL 230 523 (BIMAL) for the exclusive use of the recipient, who warrants by receipt of this material that they are a wholesale client as defined under the Australian Corporations Act 2001 (Cth).
This material provides general information only and does not take into account your individual objectives, financial situation, needs or circumstances. Before making any investment decision, you should assess whether the material is appropriate for you and obtain financial advice tailored to you having regard to your individual objectives, financial situation, needs and circumstances. Refer to our Financial Services Guide for more information. This material is not a financial product recommendation or an offer or solicitation with respect to the purchase or sale of any financial product in any jurisdiction.
This material is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation. BIMAL is a part of the global BlackRock Group which comprises of financial product issuers and investment managers around the world. BIMAL is the issuer of financial products and acts as an investment manager in Australia.
BIMAL, its officers, employees and agents believe that the information in this material and the sources on which it is based (which may be sourced from third parties) are correct as at the date of publication. While every care has been taken in the preparation of this material, no warranty of accuracy or reliability is given and no responsibility for the information is accepted by BIMAL, its officers, employees or agents. Except where contrary to law, BIMAL excludes all liability for this information.


For Southeast Asia, This document is issued by BlackRock and is intended for the exclusive use of any recipient who warrants, by receipt of this material, that such recipient is an institutional investors or professional/sophisticated/qualified/accredited/expert investor as such term may apply under the relevant legislations in Southeast Asia (for such purposes, includes only Malaysia, the Philippines, Thailand, Brunei and Indonesia). BlackRock does not hold any regulatory licenses or registrations in Southeast Asia countries listed above, and is therefore not licensed to conduct any regulated business activity under the relevant laws and regulations as they apply to any entity intending to carry on business in Southeast Asia, nor does BlackRock purport to carry on, any regulated activity in any country in Southeast Asia. BlackRock funds, and/or services shall not be offered or sold to any person in any jurisdiction in which such an offer, solicitation, purchase, or sale would be deemed unlawful under the securities laws or any other relevant laws of such jurisdiction(s). This material is provided to the recipient on a strictly confidential basis and is intended for informational or educational purposes only. Nothing in this document, directly or indirectly, represents to you that BlackRock will provide, or is providing BlackRock products or services to the recipient, or is making available, inviting, or offering for subscription or purchase, or invitation to subscribe for or purchase, or sale, of any BlackRock fund, or interests therein. This material neither constitutes an offer to enter into an investment agreement with the recipient of this document, nor is it an invitation to respond to it by making an offer to enter into an investment agreement. The distribution of the information contained herein may be restricted by law and any person who accesses it is required to comply with any such restrictions. By reading this information you confirm that you are aware of the laws in your own jurisdiction regarding the provision and sale of funds and related financial services or products, and you warrant and represent that you will not pass on or utilize the information contained herein in a manner that could constitute a breach of such laws by BlackRock, its affiliates or any other person.




© 2021 BlackRock, Inc. All Rights Reserved. BLACKROCK is a trademark of BlackRock, Inc. or its subsidiaries in the United States and elsewhere. All other trademarks are those of their respective owners, used with permission.