Banking

What we learned from the latest Net Zero Asset Managers Initiative report

The latest Net Zero Asset Managers Initiative disclosure report saw 43 managers divulge their assets under management committed to net zero, with three of them being updates.

The initiative calls on asset managers to set the initial proportions of their AUM that will be managed in line with net zero, along with interim targets. In November 2021, the initiative saw 40 firms reporting. The latest report reveals the disclosures of firms that have joined the initiative since then.

Signatories are allowed to choose their methodology. The overwhelming majority used one, or a combination, of three endorsed target setting methodologies.

  • Paris Aligned Investment Initiative’s Net Zero Investment Framework (NZIF)
  • Science Based Targets initiative for Financial Institutions (SBTi)
  • Net Zero Asset Owner Alliance Target Setting Protocol (TSP)

However, some used their own methodology, which are outlined in the report and partners of the initiative “engage and support signatories to ensure effective and science-based implementation of targets and strategies going forward”.

As a result of the new disclosures, the average percent committed rose from 60%, as of the November disclosure report, to 62%.

 

Lowest commitments

Given that firms are allowed to choose their methodology, it is hard to make direct comparisons between initiatives. However, it is worth understanding why some firms fall to the bottom of the pack.

Four asset managers committed 12% or less of their assets under management to be line with net zero. Spokespeople from the firms stated this was due to a combination of client demand and imperfect methodology.

Vanguard was the lowest at 4%, making it second lowest overall, behind GIB which promised 1.3% in November.

A spokesperson from Vanguard said it was “guided solely by the interests of our clients” and said it set targets that it believed made it “accountable for the long term”.

“While maintaining our rigorous posture, we are committed to making continued progress and will continue to evaluate our approach as the market evolves and data improves, including assessing our global product offerings for potential net-zero alignment and developing additional net-zero aligned products,” they stated.

Lazard also committed less than 10%, with just 9% of its assets initially pledged.

Jennifer Anderson, co-head of sustainable investment and ESG, explained that more than 50% of the firm’s assets had been analysed against its “proprietary Net Zero Framework”.

“We appreciate some stakeholders will be focused on the headline numbers, but it is important to recognise that asset managers are not all one and the same, having different client bases and business models that will affect their commitments and the methodology they have decided to use,” she said.

Anderson also flagged the methodologies in general were “still in their infancy”.

“As industry practices evolve we expect greater focus on the real word outcomes from investor engagement with companies and better appreciation of how net zero targets impact long-term financial performance,” she said. “This should in turn result in greater differentiation of access to and pricing of capital flows to companies as the world transitions to a lower carbon economy.”

Meanwhile, Invesco and Allianz Global Investors both committed 12% of their AUM.

Invesco said that it had taken a “rigorous” approach, which meant its assets were “being committed with integrity”.

“We anticipate our committed AUM will increase over time as more of our clients make Net Zero commitments and as we work to meet the evolving needs of our clients,” a spokesperson said.

AllianzGI said the current target covers listed equity, corporate debt, infrastructure equity and infrastructure debt, and reflect the targets set in 2021.

“In the near future, we will increase the scope of our assets and set intermediate targets for our third-party client assets,” a spokesperson from the firm said. “We will continue to actively engage with our institutional clients and distributors on integrating net-zero objectives in their investments and into our mutual funds.”

Revisions

Three firms – AXA IM, DigitalBridge and Wellington Management – had initially disclosed in November last year, but provided updates for the May disclosure report.

AXA IM increased its commitment from 15% to 65%, while Wellington increased its from 10.6% to 32.4%.

AXA IM said in a press release the scope now includes 100% of corporate equity and bonds, government bonds, listed real assets and real estate assets.

Marco Morelli, executive chair at the company, said: “Targets have been set for the majority of assets where Net Zero methodologies are available for the time being, and where we have the ability to set such targets from a legal perspective.

“Going forward, our aim is to continue to grow the proportion of Net Zero aligned AUM as reliable methodologies become available for all asset classes.”

DigitalBridge, however, reduced its commitment from 100% to 90%. In the report the company said this was because it had made an acquisition of another asset manager that “is not 100% digital” and so is “in the process of assessing the portfolio”. 

Signatories are not required to update their targets every year, but they can do so. They are required to review and update targets every five years, however. They also have report on progress annually.

There are no confirmed plans to publish a report in November, according to a spokesperson, as they anticipate they would only be reporting “on a small percentage of signatories for whom it would be a relevant exercise”.

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