Paris Agreement anniversary marked by asset manager pledge and new European 2030 target.
Leading asset managers representing more than US$9 trillion in assets under management (AUM) have pledged to support the goal of net–zero greenhouse gas emissions by 2050 or sooner, primarily by supporting investing aligned with emissions reduction targets under the Paris Agreement.
The 30 founding investor signatories of the Net Zero Asset Managers Initiative include BMO Global Asset Management, Fidelity International, Nordea Asset Management, Legal & General Investment Management (LGIM), UBS Asset Management and Robeco.
The initiative will be managed globally by the six founding partner investor frameworks: CDP, Ceres, Asia Investor Group of Climate Change (AIGCC), Institutional Investors Group of Climate Change (IIGCC), Investor Group of Climate Change (IGCC) and Principles for Responsible Investment (PRI).
“Delivery of the commitment also includes prioritising the achievement of real economy emissions reductions within the sectors and companies in which the asset managers invest,” the signatories noted in a statement.
The launch coincides with the fifth anniversary of the signing of the Paris Agreement and an announcement, one year on from the EU Green Deal, of a new EU climate target. Agreed at a summit of EU leaders this week, the European Union will target a 55% reduction in emissions compared to 1990 levels by 2030.
Interim targets on path to 2050
The signatories have committed to setting interim targets for 2030 that are consistent with “a fair share” of the 50% global reduction in CO2 identified as a requirement in an Intergovernmental Panel on Climate Change (IPCC) report. Interim targets will be reviewed at least every five years, “with a view to ratcheting up the proportion of AUM covered until 100% of assets are included”.
Asset managers will further take Scope 1 and 2 emissions into account within their portfolios; they will consider material Scope 3 emissions “to the extent possible”.
If using offsets, signatories will “invest in long-term carbon removal, where there are no technologically and / or financially viable alternatives to eliminate emissions,” the statement added. Furthermore, asset managers have committed to creating investment products aligned with net-zero emissions by 2050 and to “facilitate increased investment in climate solutions”.
The initiative aims to encourage asset managers to improve levels of engagement with asset owner clients, committing to providing information and analysis on net-zero investing and climate risk and opportunity where possible. This will largely be done through non-financial reporting that is in line with the Task Force on Climate-related Financial Disclosures (TCFD) guidelines, with the inclusion of a climate action plan on an annual basis.
Under the initiative, signatories have pledged to engage with key actors within the investment system, such as credit rating agencies, auditors, stock exchanges and data providers in order to ensure that products and services available to investors are aligned with net-zero targets. As well as this, asset managers will be expected to “implement a stewardship and engagement strategy, with a clear escalation and voting policy, that is consistent with [the initiative’s] ambition for all AUM to achieve net-zero emissions by 2050 or sooner”.
Initiative Backed by Asset Owners Alliance
The thirty signatories backing the Net-zero Asset Managers initiative joins over thirty of the world’s largest asset owners (combined AUM of US$5 trillion) who have formed their own Net-zero Asset Owner Alliance, which also commits to net-zero emissions by 2050.
“The United National Environment Programme Finance Initiative (UNEP FI) welcomes this initiative from asset managers around the world as the next piece in the ‘net-zero jigsaw puzzle’. Along with the Net-zero Asset Owner Alliance – co-convened by UNEP FI and the PRI – institutional investors along the full value chain are now taking the pole position in the Earth’s critical transition to the 1.5°C Paris pathway,” said Eric Usher, Head of UNEP FI.
One year on from the EU Green Deal, the European Commission (EC) has announced that EU leaders have endorsed a new EU climate target of a 55% reduction in emissions compared to 1990 levels by 2030.
Although widely supportive of the European Commission’s announcement, CDP has called for the EC to further “encourage companies to set ambitious science-based targets in line with the 1.5°C pathway”. The non-profit body pointed to insights from the Science Based Targets Initiative which indicated that a 55% target “will only bring the EU in line with a 2°C target”. CDP is therefore calling for the EC to consider a 60 to 65% reduction by 2030 target, closer in range to the UK’s recent pledge to reduce emissions by 68%.
Nonetheless, these commitments are indicating that firm action is on the horizon, noted Stephanie Pfeifer, CEO of IIGCC and founding partner of the Net-zero Asset Managers Initiative. “We talk a lot of tipping points in our sector, but 30 of the world’s leading asset managers with assets under management of over US$9 trillion committing to the goal of net zero by 2050 really can help tip the balance in favour of the global economic transition to net zero,” she said.