Asset Owners Plug NZAM Gap with Stronger Fiduciary Oversight
Fears of divergence in climate ambition mount, with increased scrutiny of external managers seen as key to ensuring net zero progress.
Asset owners are looking to step up engagement with their external asset managers to make sure that they uphold their individual climate commitments, following the suspension of the Net Zero Asset Managers initiative (NZAM).
NZAM announced the temporary suspension of its activities pending a review of its processes earlier this month, less than a week after BlackRock’s departure from the alliance due to sustained pressure from the anti-ESG movement in the US.
“It is concerning that one of the most critical systemic risks facing the financial industry [climate change] has become so politicised,” Charlotta Dawidowski Sydstrand, Head of ESG at Swedish government pension fund AP7, told ESG Investor.
“We recognise that many asset managers are in a difficult position, having to balance contradictory demands from their clients. But it’s important that asset owners with net zero commitments make their expectations of asset managers clear to counteract the pressure from the anti-ESG movement.”
AP7 does not outsource its voting and stewardship, but it does evaluate its external asset managers on their climate performance, according to Dawidowski Sydstrand.
“We are currently in dialogue with [our asset managers] to clarify their positions considering the recent developments,” she said.
NZAM’s temporary suspension has largely been driven by the shifting political tide in the US, with the newly anointed Trump administration already pushing through rollbacks in climate-related policies.
“With [this] change […] and real threat of litigation or boycott of investment managers, it was logical for NZAM to review its purpose and approach,” said Hetal Patel, Head of Sustainability Research and Climate Investment at long-term savings and retirement business Phoenix Group.
Upon initiating its review, NZAM removed its commitment statement and list of signatories from its website.
The asset manager-backed initiative is not the only alliance to succumb to political pressure.
Earlier this month, high-profile US banks exited the Net Zero Banking Alliance (NZBA). In 2024, the Net Zero Insurance Alliance disbanded, later rebranding as the Forum for Insurance Transition to Net Zero.
The umbrella body Glasgow Financial Alliance for Net Zero (GFANZ) has also recently announced plans to restructure, pledging to focus more specifically on facilitating transition finance flows.
Prior to BlackRock’s exit and the temporary suspension of NZAM, the alliance touted over US$50 trillion in collective assets under management.
Fit for asset owners
The review aims to ensure that the asset manager alliance remains “fit for purpose” in a global context, according to NZAM’s statement.
It is currently unclear how this will change the structure of the alliance, but David Carlin, Founder of D. A. Carlin and Company, noted that NZAM “should focus on the impact and efficacy of the group”.
“Ideally the US situation should not really change the goals of NZAM [but] should help the initiative clarify its value to members in specific ways that reduce risk and increase opportunities,” he said.
It is up to asset owners to ensure that any increase in pragmatism from the alliance – or ex-signatories – does not come at the expense of climate ambition.
“Asset managers stepping away from the initiative must demonstrate clear, actionable strategies for integrating climate considerations into portfolio management,” said Anders Schelde, Chief Investment Officer at Danish pension fund provider AkademikerPension.
“Passive responses or disengagement do not align with fiduciary or climate goals.”
Asset owners should assess individual asset manager climate commitments and strategies more closely, he added – including how they exercise voting rights on key resolutions.
“Ultimately, if asset managers are unable to meet their clients’ needs, this could lead to more asset owners bringing their asset management in-house,” said Dawidowski Sydstrand from AP7.
Jessye Waxman, Senior Strategist for Sierra Club’s Fossil-free Finance campaign, called for asset owners to also push asset managers to develop more investment funds that contribute to real-world emissions reductions and to stop new investments in fossil fuel producers without credible transition plans.
“US political action is actually a blow for US fund manager competitiveness, [with] managers at a disadvantage when competing for European clients,” said Mark Campanale, Founder and Director of think tank Carbon Tracker.
Raising the bar?
Others have claimed that the review is an opportunity for NZAM to strengthen its membership criteria.
“NZAM’s requirements of its members were so weak as to be mainly symbolic,” said Paddy McCully, Senior Energy Transition Analyst at French NGO Reclaim Finance.
Carbon Tracker identified ties between NZAM members and laggard oil and gas majors, with 25 members – alongside 65 non-NZAM signatories – collectively investing US$417 billion into 15 of the world’s largest oil and gas companies in 2023.
Waxman said that, going forward, NZAM should look to demonstrate more leadership by working with its remaining members to elevate their responsible management of climate-related risks and other sustainable investment issues.
“While we are disappointed in US financial institutions for dropping out, if what we are seeing is the disengagement of laggards, this could be an opportunity for NZAM to move the needle with remaining members, promoting changes that asset managers need to take to succeed in the global transition to a low-carbon economy,” she said.
Teething issues
The temporary suspension of NZAM will nonetheless be challenging for asset owners with net zero commitments.
“A potential weakening of NZAM poses challenges […] including reduced alignment with external managers and diminished transparency on progress,” said Schelde.
Dawidowski Sydstrand also shared her concern that this will result in a widening divide between asset owners that view climate change as a long-term systemic risk and asset managers who risk legal proceedings for taking climate risk into account.
“As fiduciaries, we have an obligation to respond to the systemic risk of climate change, which will impact […] value for our clients,” a spokesperson from BNPP Asset Management (BNPP AM) – a European signatory of NZAM – told ESG Investor.
“We view the achievement of a net zero economy by 2050 as a financial imperative. We also believe that collaborative initiatives such as CA100+ and NZAM help us to respond to systemic risks in an orderly and predictable manner.”
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