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Driving down carbon emissions: our net zero strategy for our investment portfolio

We believe we have a responsibility and an opportunity as a major investor to encourage and support decarbonisation in the businesses we invest in.

Guiding our assets to net zero 

Wellcome’s funding comes from its investment portfolio. Our investments are spread across a wide range of businesses and fund managers.

The purpose of the portfolio is to generate returns to fund our mission of supporting science to solve urgent health challenges.

But as a sizeable and responsible investor, we have a real opportunity to encourage and support the businesses we invest in to decarbonise. We think this will be good for them, and for our long-term investment returns. 

Our plan to do this involves encouraging the managers of our assets within our portfolio to adopt a net zero strategy, with the view that if 100% of them deliver on this, we will have decarbonised our portfolio. 

This is part of our overall approach to responsible investment and stewardship of our assets.

We believe that our strategy will see Wellcome’s investments portfolio reach net zero by 2050 at the latest. 

Measuring: knowing where we are 

Wellcome’s public equity investments already have a comparatively low carbon footprint, at less than a third of the relevant global benchmark. This is because we have relatively little exposure to the most carbon-intensive businesses. 

However, we want to do everything we can to drive down the carbon emissions in our portfolio. To help us keep on track, we publish annually an assessment of the proportion of our portfolio by value with a company-declared net zero target, the proportion with a science-based net zero commitment and the proportion with a near-term science-based target.  

As of September 2023, 35% of our portfolio by value has a company-declared net zero target and 25% of the portfolio has a near-term science-based target. These figures are up from 26% and 23% respectively in September 2022. 15% of the portfolio has a science-based net zero commitment as of September 2023.

You can read further analysis of our progress in our annual report.

We want to see these numbers continue to increase, and we will be stepping up the expectations we set for the companies and funds that we invest in.

Because our focus is on driving emissions reduction, we will not usually favour the use of carbon offsetting as a means of targeting net zero. Where these offsets must be used at the individual company level, we will look at the quality and efficacy of these offsets. 

Engagement: setting our expectations 

We will work with the managers of each asset we own to put them on, or encourage them along, the path to decarbonisation. We’ve created what we call an ‘engagement ladder’ to benchmark where we think each asset in our portfolio is on this journey. The aim of our engagement will be to continually encourage each company or manager to move up the ladder to achieve carbon neutrality.

We will prioritise the areas in which we think we can make the biggest difference. Initially, we believe this will be in private equity, where we’ve found that conversations about decarbonisation tend to be at an earlier stage than in public equity markets.

While our preference is to encourage companies to decarbonise we have also been clear that companies that do not engage positively on environmental concerns do not represent good investments and do not have a place in our portfolio in the long term. As well as driving real-world change, our strategy will help us minimise the exposure of our portfolio to businesses that face climate change risk.

Evolving our strategy 

One of the key challenges in our plan to encourage the businesses we invest in to decarbonise is a lack of quality, standard metrics. We are encouraging all the businesses we invest in to follow the recommendations set out by the Task Force on Climate-related Financial Disclosures, which is the global standard for climate-related disclosure. 

We are a member of the Institutional Investors Group on Climate Change, which helps institutional investors, such as us, to engage with businesses on decarbonisation and develop emissions reporting standards.

We believe that our strategy will evolve over time, as data and industry practice develops. 

We have set a deadline of 2050 for our portfolio to be net zero which we know is achievable, because it’s important to us that we do not make promises we cannot deliver. However, we will keep this under review and hope to bring this date forward as the path towards decarbonisation becomes clearer across all parts of society.