Manulife Investment Management: How real assets can provide real solutions

Real asset investments play a key role in the journey to net zero, says Manulife Investment Management’s Christoph Schumacher.

Christoph Schumacher
Christoph Schumacher

This article is sponsored by Manulife Investment Management

How can asset managers invest sustainably for a better world? And how can investments in real assets contribute to meeting investors’ climate change goals? In this Q&A, Christoph Schumacher, global head of real assets for private markets at Manulife Investment Management, expands on the integral role of real assets in the finance industry’s collective drive towards net zero.

Why are investors looking to real assets to help mitigate climate change?

I believe there’s a combination of factors at work. Investors in real assets – whether transportation networks, net-zero buildings, renewable power generation or sustainable agriculture – can quantify their carbon emissions in a tangible way. This is critical, because we are seeing growing demand for greater corporate transparency and stakeholder accountability, and regulators across the world are accelerating their interest and enforcing stricter sustainability guidelines. Investors can be confident that investments in real assets represent a route to net zero.

We’re also seeing more partnerships between scientists, the academic community and investment teams. These are essential to implementing, recording and measuring our progress, and ensuring the effective integration of sustainability into the footprint of portfolios. They also help to satisfy clients who are asking more and more demanding questions about our climate mitigation and adaption measures.

Investors are keenly interested in learning how real asset investments can help them achieve their climate goals. They’re asking how we integrate our principles into our everyday, on-the-ground operations; how we measure our success, using credible, internationally agreed, standards; and how we engage with other companies to improve their sustainability.

And finally, real assets tend to be less vulnerable to unexpected changes in inflation, consumer preferences and global growth than more cyclical financial assets. In times of uncertainty, these assets, especially when located in North America, Australia or New Zealand, can offer protection.

Can agri and forestry management practices combat climate change?

Sustainable agricultural and timberland investing provides low-cost climate change solutions that also act as a first line of defence for protecting and enhancing biodiversity. According to the World Business Council for Sustainable Development, these cost-effective natural climate solutions represent 37 percent of the opportunity to deliver the emissions reductions needed to limit global warming to 2 degrees Celsius – and are available now.

The ability of forests to capture and store carbon is broadly recognised as one of the most effective and cost-efficient mechanisms available to mitigate climate change at scale. In addition, new approaches like mass timber or cross-laminated timber are increasing the potential usage and benefits of wood-based construction. As a new report in Nature confirms, building with wood can reduce greenhouse gas emissions significantly compared to carbon-intensive concrete and steel.

As with forestry, several nature-based solutions exist for agriculture. Incorporating regenerative practices such as cover cropping and no, or low, tillage promote soil health and water storage capacity, which in turn increase carbon storage. Agroforestry blends trees and shrubs with farmland to boost environmental, social and economic benefits, and the amount of grassland conversion avoided is estimated to result in preventing the release of 35 million tonnes of carbon dioxide equivalent per year.

While carbon measurement practices continue to evolve, and more investors and companies begin to explicitly value carbon sequestration and other ecosystem services, we believe carbon will become a more valuable attribute of both timberland and agriculture. We’re developing a platform for investors to be able to make these types of credible, measurable, impact-focused climate and nature investments at scale.

How can other real assets help reach net zero?

All real assets provide opportunities to reduce the effects of climate change – especially infrastructure assets, which are critical to society’s transition to cleaner energy. And technological advances such as in agriculture infrastructure, are essential to achieving a reduction in the farming sector’s carbon footprint. Real estate assets are vital to reducing the built environment’s carbon footprint, and investors will want to see building efficiency improvements, fuel switching, and renewable technology that support carbon reduction goals.

At Manulife Investment Management, our aim is to reduce our Scope 1 and 2 greenhouse gas emissions across the properties in our portfolio that are within our operational control by 80 percent by 2050.

How do your teams approach the sustainable management of real assets?

Our approach to sustainable investing rests on integration, stewardship and collaboration. Where we invest and operate assets in our real estate, timberland and agriculture portfolios, we seek to raise the bar of sustainable investing and stewardship while enhancing the value of our assets and having a positive impact on all our stakeholders.

Within infrastructure, we focus on building strong relationships with companies, sponsors and co-investors. This enables a meaningful approach to sustainability and enhances our influence over key assets and portfolio companies. In addition, we contribute to and support several climate-focused collaborative initiatives – we know that managing real assets for optimal carbon sequestration and minimal greenhouse gas emissions is a sophisticated discipline, requiring a holistic approach from an experienced team.

How has your experience shaped your approach?

We’re long-term investors who are committed to sustainably delivering on our clients’ financial objectives and acting as responsible stewards of the assets that we invest in. We believe that real assets are especially critical to providing real answers to society’s most pressing challenges, and that investors can potentially benefit from putting their capital to work in a way that generates a positive contribution to society.

We’re signatories to the PRI’s corporate sustainability initiative, and our real estate capabilities are recognised as a sector leader by GRESB Assessments, where our infrastructure capabilities are also highly rated. And we’ve worked with the Task Force on Nature-related Financial Disclosures to create reporting standards for biodiversity and natural capital, and with industry peers and non-profits to develop a new sustainability standard for agriculture, Leading Harvest.

One of our goals now is to further reduce the emissions footprint of operations, where we have already achieved net zero. We are also working towards net zero emissions in investments and we’re offering a range of sustainable investing options to clients. Furthermore, we believe our vast natural resource holdings make us uniquely positioned in our sector to accelerate the use of nature-based solutions in the fight against climate change.