(Tuesday 2nd November, London) Yesterday the Net Zero Asset Managers (NZAM) initiative released its progress report, setting out interim (2030) emissions reduction targets set by 43 of the initiative’s 220 members.
It reveals that the average proportion of total assets under management (AUM) being managed in line with net zero (by 2050) for these 43 signatories is just 35 per cent.
This average figure hides a wide variance of individual members’ proportion of AUM targeting net zero by 2050. Eleven members have committed 100 per cent of assets to this target, while others have committed tiny fractions of their assets. GIB Asset Management, for example, has committed just 1.26 per cent of its assets to net zero by 2050.
The quality of interim targets also varies widely, with many members targeting reductions in emissions intensity, thereby allowing continued increases in absolute emissions.
Peter Uhlenbruch, Director of Financial Sector Standards at ShareAction, said:
"The NZAM progress report is a step in the right direction, and it’s positive to see more granularity around signatories’ initial disclosures. However, an average commitment by signatories to manage only 35 per cent of AUM in line with net-zero doesn’t signal the level of ambition the net zero revolution demands, especially given the flexible choice of methodologies available. One signatory has only committed to aligning 1.26 per cent of their AUM with net-zero, which makes one wonder if the bar to be admitted as a signatory remains far too low."
To accelerate climate action in line with the urgency of the crisis, the NZAM initiative should move swiftly to set minimum requirements for the current percentage of AUM committed to net zero, as well as a deadline for committing 100 per cent of assets to that target.
It should also increase the frequency of target reviews, which are currently required every five years. This is far too infrequent, especially given the lack of ambition currently on display. ShareAction urges the initiative to mandate annual reviews of AUM commitments and interim emissions reduction targets.
Excuses, excuses
The initiative asked members to report on barriers to committing 100 per cent of AUM to net zero. These can be summarised as:
- Client mandates
- Lack of methodologies for measuring net zero in certain asset classes (e.g. derivatives, cash, private equity, green bonds, sovereign bonds, covered bonds and structured products)
- Data availability
- Policy uncertainties
These excuses do not justify the low commitment of many members. Methodologies, data and policies are rapidly developing and can be expected to be in place in the near future. Their absence in the present should not be used as an excuse for committing to net zero by 2050.
Client mandates, too, are rapidly evolving. Fifty-six of the world’s largest asset owners are now members of the Net Zero Asset Owners initiative and many more are demanding increased climate action from managers. Moreover, asset managers should be proactive in engaging with the few remaining clients who are resistant to having assets managed in line with net zero. If NZAM members believe that climate change is a financial risk to investments, it could be argued that they have a fiduciary duty to proactively seek client mandates to address this risk.
Tiptoeing around fossil fuel investment
The progress report also reveals that the network partners have introduced a new fossil fuel policy for the initiative, setting out “ expectations on fossil fuel investment, asking signatories to adopt robust and science-based policies aligned with a 1.5°C scenario.”
It is disappointing that the initiative is merely ‘asking’ members to meet their ‘expectations’, rather than setting more robust membership requirements. The initiative should require all members to have a fossil fuel policy (many do not) and to publish fossil fuel phase-out plans for all assets being managed in line with net zero.
Weak accountability
Finally, the progress report also reveals that the initiative has established an accountability mechanism that can see members be delisted if they fail to disclose targets or report progress. Accountability mechanisms are vital for collaborative initiative such as NZAM. However, this mechanism falls short of what is required, as it makes no reference to the quality of targets set or the extent of progress made towards fulfilling commitments.
Nor does it hold members to account on their commitment to implement stewardship policies in line with net zero. This is a concern as robust stewardship - including escalation and voting - are vital if asset managers and their investee companies are to achieve net zero goals.
The report states that the Network Partners may propose further elements for assurance of compliance through the reporting process, following this introductory period to build capability around compliance.
ShareAction hopes to see this fast-tracked as a matter of urgency.
