“Not about getting the badge but taking the action”: Net Zero Asset Managers initiative covers a third of global AUM
More than a third of total assets under management worldwide are now under the Net Zero Asset Managers initiative, an industry action group aiming to reduce carbon emissions in the investment world.
The initiative has tripled in size since its launch in December 2020, and recently added 43 new signatories including BlackRock, Invesco, and Aviva Investors, bringing collective assets under management up to USD32 trillion.
“Over a third of the world’s AUM is now committed to securing a net zero and resilient future through the Net Zero Asset Managers initiative. We need to move the narrative to reflect this, no longer is this a coalition of the willing – this is a coalition of the determined,” says Stephanie Pfeifer, CEO of Institutional Investors Group on Climate Change, one of the founding partners of the Net Zero initiative.
The initiative’s members have signed a commitment to support the goal of net-zero greenhouse gas emissions by 2050 or sooner, and will set interim targets for 2030.
Daisy Streatfeild, Investor Practices Director at Institutional Investors Group on Climate Change, says that the number of asset managers signing up to the initiative is “a huge indication of industry appetite and attention on climate, and the need to achieve emissions reduction globally”.
With 36 per cent of global assets under management committed to net zero emissions target, this goes beyond the UN’s “breakthrough” point for decarbonising finance, announced in January at the World Economic Forum.
Streatfeild says several more asset managers have expressed their interest in signing up in the past week, and other organisations are still working towards making the commitment, who she expects will “come forward in another wave of signatories”.
Awareness of ESG risks is becoming increasingly important for asset owners in selecting new asset managers. Most investors say ESG now plays a “major role” in manager selection, and most agreed they were ‘unlikely’ to hire a manager who is not a signatory of the social and environmental investor network, the UN Principles for Responsible Investment (PRI).
While Net Zero Asset Managers does not formally ask asset managers’ reasons for signing up, Streatfeild says that many asset managers are concerned with their positioning in a market that is beginning to demand greater climate awareness.
“Certainly, the impression we get is that there is an awareness that asset owners, their clients, are starting to demand this,” says Streatfeild, noting that some managers may be motivated by the desire to attract new business.
Streatfeild continues: “Some other managers are really seeing this is a way to drive change within their own organisation. So, by making the commitment, by making that clear, by making that public and joining the collaboration, that is a helpful tool to ensure that they continue to progress in the right direction.”
Larry Fink, CEO of the world’s largest asset manager, BlackRock, said that one of the firm’s “greatest responsibilities” is to help investors prepare their portfolios and capture investment opportunities on the path to net zero.
Meanwhile, CEO of member organisation Lazard Asset Management, Ashish Bhutani, says: “The climate crisis we face has societal and financial implications. We have joined the Net Zero Asset Managers Initiative to hold ourselves accountable to deliver on our responsibility to protect our clients’ portfolios from systemic risks such as climate change.”
Accountability is a key part of the Net Zero Asset Managers initiative, as signatories commit to report their progress toward the recommendations of the Task Force for Climate-related Financial Disclosures as well as submitting their climate action plans.
Net Zero Asset Managers is open to all asset managers. The initiative says it engages with asset managers before they sign up, in order to make sure they have fully understood the significance of the commitment they are making.
“All of the network partners recognised that it is really important that this initiative is meaningful and credible, and we do want it to be inclusive in bringing more asset managers to make these commitments and implement them,” says Streatfeild.
Previous research has raised doubts about the effectiveness of other investor group initiatives. A study in 2020 by Northwestern University and Georgia Institute of Technology examined signatories of the responsible investor network UN PRI. It found that asset managers who signed up saw investment flows increase 3.3 per cent per quarter over six quarters after signing, compared with the six quarters prior. Meanwhile, there was no improvement in the ESG scores of the firms’ underlying investments.
“It is about not just getting the badge at the beginning but taking the action,” says Streatfeild. “It is very much on the minds of the asset managers that have joined that they don't want their own commitments to be undermined by others who will not be undertaking it in that way. I think there is a mutual understanding that we do need to make sure this has credibility and to have those assurance processes that that enable us to make sure that isn't a vehicle for greenwashing.”
The initiative is putting processes in place to ensure managers are meeting their commitments, which includes declaring the proportion of assets invested in line with net zero, and declaring targets and methodology. Members who fail to do this will “potentially be delisted from the from the initiative”, according to Streatfeild.
The initiative is being managed globally by six founding partners: Asia Investor Group on Climate Change, CDP, Ceres, Investor Group on Climate Change, Institutional Investors Group on Climate Change and Principles for Responsible Investment.