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NZAM Aligns US$16 Trillion with 1.5°C Pathway

Commitments “a key step” toward net zero financial system – PRI’s Atkin.

Eighty-three members of the Net Zero Asset Managers initiative (NZAM) have committed to managing US$16 trillion AUM in alignment with achieving net zero greenhouse gas (GHG) emissions by 2050 or sooner, representing 39% of their collective assets.

The figures, released in NZAM’s new target disclosure report, reflect the initial targets of managers which joined the scheme before May 2021. With 53 firms joining the initiative since November 2021, there are now 273 members, with collective assets of US$61.3 trillion, The most recent signatories include T Rowe Price, Credit Suisse Asset Management and Frontier Investment Management.

“These commitments by investors are a key step towards the realisation of a truly net zero financial system,” said David Atkin, CEO of the UN-convened Principles for Responsible Investment (PRI).

“We know that climate risk is financial risk, and that strong, decisive action is needed to keep the possibility of limiting warming to no more than 1.5°C alive.”

Within 12 months of joining the initiative, asset managers must submit an interim target for the proportion of assets to be managed in line with reaching net zero by 2050 or sooner. Reviewed every five years, the percentage of assets aligned with net zero will be gradually increased until 100% of assets are covered.

Signatories are also expected to fulfil other requirements, such as reporting progress annually against the Task Force on Climate-related Financial Disclosures and providing asset owners with information and analytics on net zero investing and climate risks and opportunities.

Asset managers’ approaches to setting interim targets varied according to the size of their operations (the number of clients), types of assets held (active versus passive) and different target-setting approaches.

For the latter, the report noted that the initiative is designed to be “methodology neutral”, thus allowing asset managers to “choose the most appropriate target methodology for their business”.

The Paris Aligned Investment Initiative’s Net Zero Investment Framework, Science Based Targets initiative and Net Zero Asset Owner Alliance Target Setting Protocol are all recognised and endorsed by NZAM.

“To ensure targets are robust and science-based, asset managers should choose one or a combination of [these] methodologies. If asset managers wish to use an alternative methodology, they should explain the rationale in their disclosure and reporting, including how their alternative methodology is in line with best available science on achieving the 1.5°C goal of the Paris Agreement,” the report said.

Raising ambition

While most of the figures released in the report reflect new commitments, some asset managers also updated their initial targets so they were more ambitious, the report added.

AXA Investment Managers and Wellington Management updated their November 2021 targets for the percentage of assets to be aligned with net zero by 2050 or sooner from 15% to 65% and 10.6% to 32.5% respectively.

Asset owner signatories of the UN-convened Net Zero Asset Owners Alliance (NZAOA) are also raising their ambitions. Twenty-nine members, including Allianz and Swiss Re, are planning to achieve deeper emissions cuts compared to the NZAOA’s required 16-29% reduction by 2025 across listed equity, corporate bonds and real estate.

“While there is some way to go, that US$16 trillion of assets are now committed to be managed in line with achieving net zero by 2050, is a more than positive start – although targets must of course still translate into action,” said Stephanie Pfeifer, CEO of the Institutional Investors Group on Climate Change.

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