Aligning Capital to Ambitious Climate Goals
Asset managers’ net zero targets depend on governments living up to their commitments, says Rebecca Mikula-Wright, CEO of AIGCC and IGCC and NZAM Chair.
As we approach COP29, which (roughly) coincides with the fourth anniversary of the Net Zero Asset Managers initiative (NZAM), it’s an excellent moment to reflect on progress and reaffirm the individual commitments of NZAM signatories to accelerating the transition to a net zero global economy.
NZAM was launched to mobilise and support asset managers in taking ambitious action, helping them set interim targets and track their progress aligning investments with the Paris Agreement goal of limiting global warming to 1.5°C – the climate scenario with the greatest net economic benefit.
Now, with more than 325 signatories to the initiative, we will continue to focus on supporting investors to deliver on their fiduciary obligations to manage the financial risks and opportunities associated with climate and to enhance long-term value for their beneficiaries.
Laying foundations
NZAM was born out of a recognition that climate change poses a systemic risk to investors that no individual investor can address alone. Through their stewardship and asset allocation, asset managers can contribute to the steering of global capital towards sustainable, innovative and resilient investments – and a net zero economy.
However, governments living up to their own commitments under the Paris Agreement is crucial to NZAM signatories meeting their targets and avoiding the climate-related financial risks to their portfolios.
The UN’s annual climate conferences (COPs) have always been catalysts for increasing action. We hope this year’s conference will be the same, prompting policymakers to again raise their own ambition, fostering an environment where the investment industry can play its part taking the opportunities of a net zero future.
Through the 2024 Global Investor Statement to Governments on the Climate Crisis, more than 600 investors – including over 100 NZAM signatories – will call on government leaders to implement policies that will unlock the private capital flows needed for a just transition to a climate-resilient, nature-positive, net zero economy.
Measuring progress
The latest data from 2023-2024 preliminary reporting, based on responses from 170 asset managers, shows how NZAM signatories have been working to implement their net zero commitments.
In the past 12 months, signatories have been taking a range of actions to implement their individual net zero commitments. More than 80% have been engaging with investees on climate as a material issue and creating internal systems to integrate climate considerations into their investment processes.
Signatories indicate that they are seeing material progress as a result of their efforts: 73% reported contributing to increased net zero ambition and action of their investees, and 46% said their actions contributed to real economy emission reductions by portfolio companies. 47% of signatories reported advancements in facilitating investments in climate solutions. Importantly, 26% of respondents reported progress in more than two of these areas.
Despite these advancements, challenges still hinder signatories’ progress, namely data availability (reported by 58%), methodology development for specific asset classes or strategies (49%), client awareness (38%), and the mispricing of risk (28%).
While signatories may work around these challenges as best they can to reach their targets, the data shows that their work exists in a broader context. It shows the need for continued climate innovation, education, and collaboration within the financial sector and broader economic system, and the recalibration of market incentives in line with a net zero global economy to overcome these obstacles.
Looking ahead
NZAM continues to grow, and the signatory base continues to make progress setting targets and progressing towards them.
In the year ahead, the network partners who run the initiative will look for opportunities to maintain that growth, continuing to reach and support more investors. Existing signatories can continue to rely upon the initiative to provide the best, most usable frameworks and processes for declaring climate objectives and showing their ongoing commitments.
As we live through, or see, more frequent physical damage, disruption and the massive costs to economies and communities from climate change, there is an urgent need to accelerate the transition towards global net zero emissions.
NZAM’s goals of catalysing mainstream adoption of net zero commitments, and aligning capital to the ambitious, and necessary, climate goals remain as compelling as ever.
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