If it’s true that money talks, then a whole lot of money is talking very loudly about the need for companies worldwide to lower their carbon footprints. In this case, the money comes in the form of the Net Zero Asset Managers Initiative (NZAM), which is made up of major global asset managers who have pledged to support targets for net-zero greenhouse gas emissions in their portfolios.
The initiative, which formed in December, put together some of the world’s biggest investors, with combined assets under management of more than $9 trillion. Their goal: to invest only in companies with net-zero carbon dioxide (CO2) emissions by 2050. The net-zero pledge came shortly before the five-year anniversary of the Paris Climate Agreement, which committed most of the world to limit global heating to 1.5 degrees Celsius above pre-industrial levels.
The original lineup featured some of the biggest names in the investing world, including Fidelity International, UBS Asset Management, Schroders, Wellington Management, Axa Investment Managers, and M&G. Thirty investors, most of them from Europe, originally signed on to the initiative when it launched late last year.
Since then, numerous other big names have also joined the NZAM. In March, BlackRock, and Vanguard – the world’s two largest asset managers – signed on. The initiative now includes 87 signatories with nearly $37 trillion in assets under management, representing almost 40 percent of the world’s total assets under management.
As GreenBiz noted in a May 12 article, the initiative outlines key requirements for the signatories’ commitments to net-zero and also provides an early benchmark for the asset management industry. In March, asset managers received initial guidance for implementing net-zero commitments with the release of the Net Zero Investment Framework Implementation Guide, led by the Institutional Investor Group on Climate Change.
Because of the sheer amount of money these asset managers invest in companies, they have a lot of sway in forcing companies to lower their carbon footprints. The key to their success will be changing their mindset from focusing on short-term profitability to longer-term economic solutions to better the climate.
According to the Net Zero Asset Managers.org website, signatories to the initiative will commit to setting interim targets for 2030. These targets should be consistent with the 50 percent global reduction in emissions required by the Intergovernmental Panel on Climate Change (IPCC), with the aim of limiting increases in global temperatures in line with the Paris accord. Asset managers will be asked to submit interim targets within a year of joining the initiative.
Among the target objectives will be the reduction of “scope 3” emissions from companies’ products, such as carbon from burning fossil fuels like oil and coal. The targets will be reviewed every five years. Signatories have also committed to using their shareholder voting and lobbying power to favor sustainability initiatives.
Another requirement will be that asset managers practice transparent accountability, including providing a yearly report on their progress to be compared to the Task Force for Climate-related Financial Disclosures (TCFD) recommendations. They will have to implement climate action plans and make sure their plans are based on a robust methodology consistent with the Race to Zero criteria.
John Kerry, U.S. Special Presidential Envoy for Climate, is among those who have applauded the initiative. In a statement on the NZAM website, he praised the signatories for recognizing that “energy transition represents a vast commercial opportunity as well as a planetary imperative. As countries around the world move to decarbonize, the large sums these institutions are dedicating to climate solutions reflect a growing understanding that the transition to a low-carbon global economy will be critical for their business models.”