Almost 50% of NZAM Assets Net Zero-aligned
Despite progress, signatories will need to demonstrate flexibility on their individual journeys to zero carbon emissions.
The Net Zero Asset Managers initiative (NZAM) has published its latest target-setting progress report, noting a positive trend toward net zero alignment, but a wide gap remains between leaders and laggards.
The report said that, as of 31 January, 42% of total AUM managed by 264 signatories was now in line with NZAM’s commitment requirements – up from 39% of US$21.8 trillion in assets in 2022. NZAM’s membership has also swelled to 325 signatories, who collectively manage US$57.5 trillion in assets and intend to align their investment portfolios with net zero by 2050 or sooner.
“It’s encouraging to see asset managers worldwide setting ambitious net zero emissions targets and implementing concrete transition plan strategies to address climate risks and seize investment opportunities across their portfolios,” said Mindy Lubber, CEO and President of investor network Ceres.
Within a year of becoming a signatory, asset managers are asked to disclose the initial percentage of their portfolio that will be managed in line with net zero, their ‘fair-share’ interim targets for assets that will be net zero-aligned, and the methodology they use for target-setting.
The process for reviewing signatories’ targets – which is undertaken by the NZAM Secretariat – can often extend several weeks past a signatory’s technical deadline.
As such, the report does not include the commitments of 20% of NZAM’s 325 total signatories – with some targets still under review, or signatories still within the first 12 months of their membership. Since 31 January, another 20 signatories have had their targets reviewed.
Crunching the numbers
Most set targets are focused on real-economy decarbonisation, with 62.5% of assessed signatories having set decarbonisation targets, 53% alignment targets, and 23% engagement targets.
NZAM signatories have also demonstrated a commitment to addressing climate risk in the shorter term, with 98% having set interim targets for or before 2030 and 27% aiming for 2025.
The majority of assessed signatories have also set targets across listed equity and corporate fixed income, at 184 and 139 respectively. Meanwhile, 55 signatories have goals for real estate assets, 43 for infrastructure, 37 for private equity and 24 for sovereign bonds.
“The lower adoption rate observed in real estate, sovereign bonds, infrastructure, and private equity assets may be attributable to lower holdings, challenges posed by insufficient data or capacity constraints, or a lack of established methodologies and guidance,” NZAM suggested.
The report did note some divergence in the target-setting frameworks selected by asset managers, with an increasing number choosing to develop their own methodologies in-house.
While the majority (51%) of signatories have chosen to use the Paris Aligned Investment Initiative’s Net Zero Investment Framework (NZIF), 22% refer to the Science Based Targets initiative for Financial Institutions guidance, and 14% draw on the Net Zero Asset Owner Alliance’s (NZAOA) Target-setting Protocol (TSP).
Meanwhile, 12% said they use a combination of these three methodologies, while 10% have chosen to develop their own in-house approach.
NZAM signatories previously said a key constraint to target-setting was the absence of methodologies for certain asset classes. Since then, new guidelines for infrastructure, private equity and private debt have been introduced.
Leaders and laggards
Despite overall progress, NZAM hasn’t set a minimum requirement for the percentage of AUM that asset managers should align with net zero over time, leading some to demonstrate more ambition than others.
For example, French asset manager Mirova has committed 100% of its US$30 billion AUM to being managed in line with NZAM. In contrast, Boston-based Breckinridge Capital Advisors has pledged just 6.5% of its US$2.7 billion AUM.
According to NZAM, the pace at which an asset manager increases its ambition over time is linked to individual mandates, investment strategies, and government policy. As such, the initiative aims to ensure each signatory has enough flexibility to tailor their own net zero journey.
“The expectation is that the proportion of AUM covered by the target will grow over time until 100% of assets are included, by 2050 at the latest,” the report noted.
However, some signatories have been criticised for investing in ways that undermine their membership.
A 2023 survey by global investment manager Russell Investments found that only a fraction of NZAM assets were managed in line with net zero objectives. Around 35% of assessed NZAM signatories had 14% or less of their total AUM in line with net zero, while 28% had more than half.
Another report from NGO Reclaim Finance showed that, as of September 2022, 58 of NZAM’s largest members held over US$840 billion in stocks and bonds in 201 major fossil-fuel developers globally.
In addition, financial think tank Carbon Tracker identified ties between NZAM members and laggard oil and gas majors, finding that 25 members – alongside 65 non-NZAM asset managers – collectively invested US$417 billion into 15 of the world’s largest oil and gas companies in 2023.
East-bound
Going forward, NZAM intends to expand its signatory base further across Asia.
“Regional network partners, like the Asia Investor Group on Climate Change (AIGCC) and the PRI [Principles for Responsible Investment], help the initiative to work with investors in different regions,” an NZAM spokesperson told ESG Investor. “They help investor signatories in their climate journey by helping them understand the regional context towards setting ambitious targets and building a credible transition plan.”
The network partners have also scaled up resourcing and deepened engagement with investors to meet this demand, the spokesperson added.
More than 200 NZAM existing members are currently based in Europe, followed by North America (over 70) and Asia (over 20). The UK holds the highest national percentage, accounting for 28% of signatories.
“[The report] demonstrates the growing commitment asset managers have made towards the goal of net zero,” said Rebecca Mikula-Wright, CEO of the AIGCC. “This momentum must continue in the Asia-Pacific. We now need to see more granular and ambitious interim targets that work towards real-economy decarbonisation goals.”
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