25 September 2023: The prospect of Australian companies hitting their stated carbon reduction and net zero targets is “unlikely compared to more dangerous scenarios”, according to global systematic investment specialist, Acadian Asset Management.
The Australian market has roughly a 20% probability of achieving a net zero target by 2050. This is based on Acadian’s systematic analysis of the ASX 300, which leveraged technology including Artificial Intelligence and Large Language Models (LLMs) to gather and interrogate volumes of company data and information at speed.
The group’s research has implications for sustainable investors and the financial advisers, superannuation funds and asset owners charged with constructing and managing climate aware portfolios on behalf of members and clients, said Matt Picone, Senior Vice President and Portfolio Management, Acadian Asset Management Australia.
“Many companies are heading into difficult territory because they have tackled the low hanging fruit, such driving operational efficiencies, using existing renewable energy sources and adopting EV fleet solutions, to get them to a certain point and now they need to work much harder to get the rest of the way,” he said.
“This will require investing in technology and exploring more theoretical options to develop their decarbonisation strategies. With so much uncertainty, we can’t say for sure a company will or won’t hit their targets but our model examines corporate communications and information, including historical data, track record of strategy execution and forward looking statements, to produce a range of likely outcomes for each company and then aggregates that for a market view.”
“The probability of the Australian market achieving its targets is worryingly low.”
Mr Picone said changing investor expectations and growing demand for sustainable investments made it critical that portfolios were accurately positioned to meet any climate-related objectives.
Acadian’s analysis follows the recent launch of the group’s Net Zero Credibility Assessment model, which is available for use by its institutional investors to help assess the likelihood of companies and markets achieving their sustainability targets. It is the first of its kind to integrate Large Language Models, the same technology that underpins ChatGPT.
According to Gillian Savage, Chief Executive Officer, Acadian Asset Management Australia, the group’s processes, systems and technology positioned it strongly to build and manage sustainable portfolios and generate alpha for its wholesale and institutional clients.
“We’re able to gather, monitor and digest company information, including annual reports, investor presentations and analyst research reports in a fraction of the time it takes traditional fundamental managers,” she said.
“Companies in the MSCI World Index release about 2,500 sustainability reports per annum and each report would take an analyst an average of 80 minutes to read but we’re doing it in about 15 seconds.”
Matthew Picone added: “Utilising LLMs, Acadian can assess information and, importantly, linguistic cues to determine, for example, if companies are being specific or vague about their decarbonisation plans. We can track changes in what companies are saying over time. Our process applies a higher score to companies that are consistent and use quantitative language, as opposed to unsubstantiated motherhood statements.”