Tom Riley is head of global thematic strategies at AXA Investment Managers.

The eyes of the world are on Glasgow this week for the 26th U.N. Climate Change Conference of the Parties, known as COP26. Expectations are high, with the U.K. looking to sign the world up to net-zero targets by the middle of the century and keep global warming at no more than 1.5 degrees Celsius.

But among these grand goals is another, often overlooked, objective to mobilize finance, with COP26 organizers challenging the international financial community to unleash the trillions in finance needed to secure net-zero.

Given the pace of economic development in the Asia Pacific, the region's investment community has an important role in combating climate change. But up until now, the narrative and buy-in around sustainability has lagged the rest of the world.

The COP26 is unequivocal in its ambition: to achieve needed climate goals, every company, every financial company, every bank, insurer and investor will need to change.

This means that asset managers must look at what they are doing internally to reduce their own carbon footprint. To hold investee companies to account from a position of strength, we need to have bold targets when it comes to our own emissions first.

One particular area that asset managers could consider looking at is the very buildings in which they operate, which are usually the biggest contributors to carbon footprints, mapping out the potential for reduction, and if necessary, implementing offsetting strategies. Another area could be using the fees they levy to go toward nongovernmental organizations that specifically align with the Paris Agreement objectives.

In Asia, environment, society and governance (ESG) assets reached $25.4 billion at the end of 2020, having seen inflows of $7.9 billion, up from $801 million in 2019. However, this is still small compared with the more than $1 trillion in assets under management held globally. To get to net-zero by midcentury, the industry needs to redefine its goals for investing and set them within a wider global context.

Asset managers need to develop methodologies to keep the warming potential of investments below 1.5 degrees Celsius, as well as calculate the climate value at risk of investments. Asset managers should also look to launch products with mandates that seek to support specific U.N. sustainable development goals (SDGs) in the Asia Pacific region, as well as arrange for the distribution of more globally focused sustainable funds in the region.

AXA Investment Managers' Act funds, which aim to meet some of the U.N.'s SDGs, for instance, are estimated to have helped avoid 63.6 million tons of CO2 emissions since their launch. Rolling out more sustainability thematic funds should also encourage greater inflows.

With China, India, Indonesia, Japan and Vietnam accounting for 80% of the world's planned new coal plants, it is also more important than ever for asset managers to show a firm commitment to divesting away from companies and industries that are fueling increased carbon emissions, especially coal.

Coal barges queue to be pulled along Mahakam river, Indonesia, in August 2019: it is important for asset managers to show a firm commitment to divesting away from companies that are fueling increased carbon emissions.   © Reuters

While such commitments are welcome, asset managers also need to overcome accusations of greenwashing. While such accusations are sometimes justified, claims of greenwashing can also sometimes make perfect the enemy of the good.

For instance, portfolios will have exposure to investee companies that have good intentions but face difficulties calculating and reporting their climate risks, while others choose engagement with companies on transitioning their operations over divestment. Such transition processes can be hard to quantify and the timeline over which these unfold can be quite long.

The lack of common standards across sustainable investing and ESG data in Asia also makes it difficult for investors to meaningfully compare sustainable investing options. Thus, data used to assess companies needs to be relevant, reliable and consistent.

In that spirit, the asset management industry needs to move in the direction of better convergence, and ideally, harmonization of methodologies across issuers at the global level to facilitate investment decisions in a consistent and homogeneous manner.

Aside from targeting sustainable investments, the asset management community in Asia also needs to step up engagement activities with investee companies on climate issues. This has been seen recently with Asian power utility companies, who have become targets of a large institutional investor drive to decarbonize their operations, using annual general meetings to put pressure on them to do more.

The asset management community should remember that voting is only one part of the engagement process. Divestment may be an attractive short-term strategy, but to drive real change, asset managers here should follow their European counterparts to consider meaningful, long-term engagements with companies on transitioning away from damaging operational models.

There are no silver bullets, but the asset management community has an important role in helping COP26 succeed. Meaningful change will only be driven through having clear objectives, perseverance and the patience to see it through.