Asset owners today face mounting pressure to understand and manage the transition risks posed by the inevitable shift to a low-carbon economy. On the one hand, there is the duty to act in the best financial interest of their beneficiaries, and on the other, there is an ever-present risk of litigation if they are seen to misrepresent their actions through “greenwashing”. These pressures are driving an increasing demand for transparent, reliable emissions data from operating entities within their portfolios. However, obtaining this data, particularly in private markets, remains a challenge.
The fiduciary responsibility of asset owners
The move towards a low-carbon economy is no longer a matter of if, but when. This shift introduces significant transition risks, which the Task Force on Climate-Related Financial Disclosures (TCFD) defines as risks linked to changes in policy, technology, market conditions, and regulation as we move to a greener economy.
These risks, if unmanaged, can result in significant financial losses for investors. For instance, companies heavily reliant on fossil fuels may see their valuations plummet as policies tighten, technologies evolve, and market preferences shift toward greener alternatives.
Asset owners, particularly institutional investors like pension funds, are under increasing scrutiny to ensure they are managing these risks effectively. Fiduciary duty demands that asset owners protect the financial interests of their beneficiaries. This means understanding how the transition to a low-carbon economy could impact the long-term value of the companies within their portfolios.
Recent court rulings, such as the Queensland super fund case in Australia, have underscored this responsibility by holding asset owners accountable for managing climate-related risks. As such, there is growing recognition that consistent and credible transition risk management disclosures are not just a regulatory requirement—they are a fundamental part of the fiduciary responsibility asset owners owe to their clients.
The greenwashing risk: a legal minefield
On the other side of the equation lies the growing threat of litigation for greenwashing. Asset owners are increasingly offering products labelled as “green”, “sustainable”, or “responsible”. However, without robust data to substantiate these claims, they risk making misleading statements, which can lead to significant legal ramifications. Regulators worldwide, including the Australian Securities and Investments Commission (ASIC), are clamping down on institutions that make false or misleading statements about their environmental credentials.
In the European Union, the Sustainable Finance Disclosure Regulation (SFDR) has already established strict guidelines for what constitutes a sustainable investment, forcing asset managers to provide clear evidence for the environmental impact of their products (e.g., through Article 8 and 9 funds). Australia is following a similar path, with initiatives like the Australian Sustainable Finance Initiative (ASFI) working on a taxonomy that will set clearer guidelines for what can be marketed as sustainable.
Asset owners who offer financial products without access to detailed, accurate emissions data at the asset level are finding it increasingly difficult to demonstrate compliance with these regulations. Simply relying on sector averages or proxy data from listed markets no longer suffices. Without real-time, accurate data, asset owners risk over-promising on the green credentials of their funds, exposing themselves to reputational damage and costly litigation.
The Pathzero solution: a collaborative emissions disclosure network
This is where Pathzero steps in. The lack of reliable, asset-level data has been a major bottleneck for asset owners attempting to manage transition risks and avoid greenwashing claims. Pathzero’s emissions disclosure network directly addresses this problem by providing a secure platform where asset owners, fund managers, and operating entities can collaborate and share the information needed to meet these challenges.
Our platform allows asset owners to go beyond broad portfolio-level estimates and access detailed, real-time emissions data from the companies they invest in. By bringing together all parties—fund managers, operating entities, and asset owners—on one platform, Pathzero facilitates a dynamic, collaborative process that not only provides the data but also allows for clarifying questions and updates. This process enables all parties to work together to manage the transition risk in their portfolios, ensuring compliance with emerging regulations and protecting their investments from material financial risks.
Mandatory disclosure frameworks, such as IFRS S2, are on the horizon, and these will require all companies, including those in private markets, to disclose their climate-related risks in a standardised format. Pathzero’s platform enables asset owners to meet these mandatory disclosure requirements, leveling the playing field by forcing lagging companies to disclose their climate-related data. This not only provides asset owners with the decision-useful information they need but also creates an ecosystem of transparency that benefits the entire market.
The road ahead
The shift to a low-carbon economy is fraught with risks for asset owners, but it also presents opportunities. By leveraging the power of Pathzero’s disclosure network, asset owners can position themselves to manage these risks more effectively while avoiding the reputational and legal pitfalls of greenwashing.
As the pressure mounts for transparency and regulatory compliance, asset owners who invest in robust, collaborative platforms like Pathzero will be better prepared to navigate this challenging landscape. With the right data and tools in place, asset owners can protect their portfolios, fulfill their fiduciary duties, and ensure they are part of the solution to the world’s climate challenges rather than contributors to the problem.
In this era of increasing accountability and scrutiny, access to accurate, actionable emissions data is no longer a luxury—it’s a necessity. Pathzero is here to provide that data, ensuring that asset owners can meet their fiduciary responsibilities, avoid greenwashing litigation, and lead the charge towards a sustainable, low-carbon future.
