Leaders and laggards emerge as new wave of decarbonisation targets are announced by asset manager group.
The Net Zero Asset Managers initiative (NZAM) has published the targets of an additional 86 members for reducing greenhouse gas emissions in their portfolios. This means 169 out of 291 of its signatories have had their targets approved, although some asset managers have not submitted targets, while others’ targets remain unapproved. The total number of published targets is more than double than in May.
US$21.8 trillion (39%) out of the collective US$55.3 trillion assets managed by members is now committed to being managed in line with achieving net zero by 2050 or sooner.
Launched in 2020, members of NZAM have 12 months from joining to submit an interim target. These targets will be reviewed every five years, gradually increasing the percentage of net zero-aligned assets until 100% are covered.
According to the new report, some asset managers are demonstrating high levels of ambition, with 63 of the 291 committing more than 75% of their assets and 97 now exceeding 50%. These include Nomura Asset Management (53%), Pictet Group (56%) and BNP Paribas Asset Management (50%). In its capacity as an Outsourced Chief Investment Officer, investment consultancy WTW has committed 100% of its discretionary assets to be managed in line with net zero, amounting to US$186.6 billion.
Around 80 NZAM signatories have yet to disclose their initial commitments because they are still within their first 12-month window. Most of the signatories whose targets were released this week signed up more than 12 months ago, but the publication of the report was held over for a couple of months for release at COP27.
“Building on the initiative’s positive start, the focus must now be on supporting managers to increase their targets and turning commitments into action with an emphasis on supporting real world emission reductions – without this, the likelihood of limiting temperature rises to no more than 1.5°C becomes more distant,” said Stephanie Pfeifer, CEO of the Institutional Investors Group on Climate Change (IIGCC).
IIGCC is one of the six investor networks that coordinate the initiative. They support the signatories with advice and guidance and are responsible for assurance regarding managers’ compliance with their NZAM commitments.
Hortense Bioy, Global Director of Sustainable Research at data provider Morningstar, noted that signatories’ commitments range hugely, with some making initial commitments as low as 1.9%.
“These commitments aren’t directly comparable, either, because they use different methodologies and approaches,” she told ESG Investor.
Further, 13 asset managers are considered ‘non-compliant’, as they failed to submit their targets ahead of deadlines set by NZAM. ESG Investor understands that these asset managers now have an additional 12 months to submit their initial targets. If they fail to do so they will be labelled non-compliant and dropped from the initiative.
“We don’t know the why behind their failed compliance,” said Bioy. “If they are a US-based asset managers, for example, are they facing the same political pressure as banks?”
Twenty-nine other targets were submitted within the 12-month deadline but are “still being reviewed”, NZAM said.
“The widely divergent levels of ambition, and of methodological approaches, in this new batch of asset manager targets shows again the fundamental problems with NZAM’s loose guidelines,” said Lara Cuvelier, Campaigner on Sustainable Investments at NGO Reclaim Finance.
She noted that a number of targets have neglected Scope 3 emissions and are not based on absolute emissions reductions. Some asset managers also failed to commit to no longer investing in new fossil fuels and coal, Cuvelier added.
“Amundi and HSBC Asset Management are among the global giants of asset management who have just released targets, yet both still buy new bonds from oil and gas expansionists, and neither of them say anything about fossil fuel expansion in their targets. Even for the coal sector, HSBC Asset Management’s recently released policy is still too accommodating with the industry laggards and must be tightened.”
NZAM signatories’ ability to ratchet up their commitments in the shorter term will be dependent on a shifting geopolitical and regulatory environment, the initiative’s update said.
Positive policy changes in Europe, such as the introduction of the Sustainable Finance Disclosure Regulation, allow EU-based managers to commit a “significantly higher proportion of assets”. In contrast, managers based in less supportive regulatory environments need to overcome more constraints, NZAM added. Global managers operating across a number of jurisdictions need to balance this wide range of requirements when setting their targets and implementing their net zero commitments.
Further, asset managers highlighted that setting targets and measuring progress is easier across some asset classes, notably equities, compared to others, which also has an effect on target-setting and net zero commitments.
“These targets are being set against an ongoing challenging geopolitical backdrop,” the update added, highlighting the impact of Russia’s invasion on Ukraine of food and energy security, as well as the ongoing cost-of-living crisis.
“We know that there is still work to be done to assist NZAM signatories in overcoming the systemic barriers to net zero, and we look forward to continuing our important work to this end,” said David Atkin, CEO of the UN-convened Principles for Responsible Investment.
“But these targets should be welcomed as a strong indicator of investors ambition and as a baseline for future progress.”