RBS International and Grist’s study, which surveyed 125 decision-makers in the AIF space in December 2022 and January 2023, covered funds domiciled in five jurisdictions (Luxembourg, UK, Jersey, Guernsey and other Western Europe) and five sectors (real estate, private equity, infrastructure, renewables and private debt).

The report found that challenging economic conditions have slowed down the adoption of science-based targets (SBTs). That being said, alternative investment funds appear to still be committed to SBTs, and their commitment has even increased since last year--90% reported that SBTs will be important to their fund in three years’ time, up from 79% in March 2022.

“The various pressures that drive the adoption of SBTs will change over time, but the pressure remains even if the causes shift,” said Bradley Davidson, ESG lead at RBS International. “The message is clear: funds must focus on future performance and the competitive advantage that solid climate change strategies aim to bring.”

Here are a few key takeaways from the report.

Adoption of SBTs has advanced very little

The report found that around four in ten survey respondents (43%) say they have already set and verified science-based sustainability targets. However, this is around the same as the figure from last year’s survey (42%), noted the report.

The other 57% of respondents plan to set targets at some point in the future, but urgency appears to have diminished, and there is more importance attached to SBTs in the future than today. Concerns about current economic conditions are amongst the most significant barriers to implementing science-based targets.

Barriers to implementation

For 37% of AIFs, the time that it takes to implement science-based targets is the most common barrier to setting these SBTs. This was also one of the most common barriers cited in last year’s edition of the survey, with 48% of funds naming it as an obstacle for setting science-based targets.

Worsening economic conditions, however, take second place in terms of common barriers to setting science-based targets in this year’s survey--35% of funds said this was one of the main barriers. Last year, 49% of AIFs cited the lack of in-house skills or expertise as a barrier to setting science-based targets, making it the most common obstacle. That figure has dropped to 18% this year, 31 percentage points lower than the 2022 survey.

RBI International’s report suggests that the challenging economic conditions are likely the reason for the change in top three barriers, rather than a tremendous increase in upskilling in this domain.

Regulation remains the main reason for SBT adoption

Regulatory pressure continues to be the strongest motivation for funds to adopt science-based targets, said the report. 38% of respondents named regulation as the most significant driver of SBT adoption, up from 35% in last year’s survey.

The lack of clarity around setting science-based targets adds to regulatory pressure, noted the report. Respondents who say that the legal and regulatory implications have increased to 32%, up from 14% in the March 2022 survey. An example of this confusion is the  from the “dark green” article 9 label to “light green” article 8 in the fourth quarter of 2022. The reclassification illustrated uncertainty around the Sustainable Finance Disclosure Regulation, said the survey.

The second most-important driver remains investor pressure, with 23% citing this as the main reason their fund is adopting science-based targets. This figure is roughly the same as last year (24%). In third place comes net-zero initiatives, with 15% of respondents saying this is the main reason for SBT adoption.

Peer pressure came in fourth place, with 12% of respondents naming it as the most significant driver, down six percentage points from the 2022 survey (18%). As in the last edition of the survey, lender / bank pressure was the least common reason for adopting science-based targets--12% of respondents in the January 2023 survey named it as the most important driver (up from 10% in the March 2022 poll).

Less urgent, but still important

The report found that 43% of AIFs have already set science-based targets and had them verified, which is a very slight increase from the year before (42%). 14% of respondents said they would set targets this year (down from 17% in the 2022 survey) and 10% would set targets within three years (down from 18%).

29% of respondents do not have timescale for setting science-based targets, up from 23% in last year’s survey and a reflection of the decreased sense of urgency amongst alternative investment funds for adopting science-based targets.

However, 90% of funds said they think that SBTs will be important to their fund in three years’ time, up from 79% in the last edition. This is “good news for funds’ long-term commitment to SBTs,” said the report.

Find the full RBS International report .