Originally published by IIGCC 

How does the Net Zero Investment Framework (NZIF) help investors? We spoke to Clémence Humeau of AXA Investment Managers to explore how they have used NZIF to move from commitment to implementation, setting all four targets and stretching ambition along the way. 

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The four Net Zero Investment Framework targets: 

1. Portfolio decarbonisation reference target
2. Portfolio coverage target
3. Engagement threshold target
4. Allocation to climate solutions target

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AXA IM was one of 70 investors who contributed to the development of The Net Zero Investment Framework (NZIF), which launched in March 2021. A little more than three years later it has become the most popular transition plan and target-setting methodology for investors who have set a net zero commitment today. 

Of those, AXA IM’s targets are among the most developed – it’s one of 10 IIGCC asset managers using NZIF to have set all four targets. Clémence Humeau, AXA IM’s Head of Sustainability Coordination and Governance caught up with us to outline how they have used the guidance so far. 

The first target 

Like most investors, AXA IM found that the process of moving from commitment to target setting took some time, especially in the early days. They first considered portfolio decarbonisation: 

“We started our first target in October 2021, mostly focused on carbon intensity reduction”, Clémence explained: “Then, we reviewed and worked with our teams, exploring how the commitment could be ambitious, but also practicable and credible.” 

“The combination of all targets is the spirit of NZIF and the best way to achieve real world change.” 

As understanding developed, the team decided to take a more holistic approach. Rather than looking at one target individually, they restarted and set out to establish all four targets from the beginning, considering how each NZIF target can complement another. 

“We wanted this to lead to actual change within teams. From there, we felt that combining all dimensions of all targets was the right way to go,” Clémence said: “We had to develop a methodology to combine quantitative and qualitative input – a vector for managers alongside financial information.” 

Many asset owners committed to net zero also use NZIF, creating a ‘shared language’ between owners and managers which helps both parties to understand and support one another’s requirements. This includes a common approach to asset assessment using NZIF’s alignment maturity scale, which helps investors assess an asset’s pathway to net zero. The framework also offers flexibility in data selection criteria to support these assessments. 

This, together with its compatibility with other guidance, helps investors to build the most accurate picture possible. It also helps to explain why NZIF is endorsed by global investor net zero initiatives including the Net Zero Asset Managers initiative, of which AXA IM is a founding signatory. 

“The combination of all targets is the spirit of NZIF and the best way to achieve real world change, and within AXA AM, integrate those commitments as broadly as possible,” Clémence said. 

Engagement opportunity 

An iterative approach is fundamental to the framework, which added two new components for private equity and infrastructure in 2023. It also emphasises investor engagement with companies to support a ‘bottom-up’ approach to emissions reductions – engaging with high-emitting assets – and a ‘top-down’ approach, such as strategic asset allocation. 

“Combining [the portfolio coverage target] with the engagement target, with NZIF, means being able to rely on individual and collaborative engagement,” Clémence explained, highlighting the opportunity for regular reviews of company voting policy and the importance of escalation. IIGCC’s net zero voting guidance aims to support investors in this space. 

Of the four, which is the most challenging target? 

Climate solutions, Clémence nods, though in her view it is also a particularly important one. The challenge is due in part to changing market conditions, as well as a lack of decision-making power for asset managers over fund strategy. That responsibility remains with its clients. 

AXA IM currently has 6% of its assets under management to be allocated to climate solutions by 2025 and will continue to review their approach over time. 

Raising ambition 

During the target-setting process, the team were able to significantly increase its percentage of assets under management to be managed in line with net zero, raising ambition from 15% to 65%. This was prompted in part by senior management, who wanted to go further and remain a leader in the field. 

“When setting our first target in 2021 we were flying blind – [IIGCC] workshops help you to share ideas.” 

The introduction of Article 29 de la Loi Énergie Climat in France also played a part. The policy aims to improve disclosures on climate and biodiversity approaches, and also requires financial market participants to progressively implement decarbonisation targets across the assets they manage – regulation which helped AXA IM to clarify the eligibility of assets. They used short-term support from consultants to help with the initial, resource-intensive demands. 

Determined to embed this ambition across the organisation, AXA IM also updated its company-wide remuneration policy, linking deferred compensation with net zero targets. This sent a clear message to the wider organisation and empowered the sustainable investing team. 

Admittedly, not every investor has the resources at AXA IM’s disposal, but Clémence has some cost-effective advice for anyone taking their first steps with NZIF: 

“Attend IIGCC’s workshops! They are a good starting point,” she smiled: “When setting our first target in 2021 we were flying blind – the workshops help you to share ideas.” 

Looking ahead, AXA IM are optimistic, but realistic, about the implementation challenges to come: “We have top management support, but what’s also important is transparency and conversations internally, to address challenges along the way. Targets are the easy part.” 

The net zero investment framework will continue to evolve with its users to support that journey.

Originally published by IIGCC 

How can the Net Zero Investment Framework help private equity investors to decarbonise their portfolios and create value? These are two sides of the same coin, argues Dr Serge Younes of Investindustrial. 

When Serge was invited to a series of discussions on a new private equity component for the Net Zero Investment Framework (NZIF) he was met with the fundamental question: how can we ‘foolproof’ the guidance for private equity? 

“We put our beta tester hats on,” the Head of Sustainability for Investindustrial said: “Bringing together Limited Partners (LPs) and General Partners (GPs), of different sizes and from different continents to structure the component and reporting, helped to make it credible and actionable.” 

The mission was to give managers very clear expectations and a process for aligning their portfolios to net zero. 

Led by Misa Andriamihaja, IIGCC’s Private Equity Lead, this investor-led approach produced a resource which has been welcomed by the industry since publication in May 2023. It focuses on aligning ambition across LPs and GPs, with the decarbonisation of portfolio companies as the overarching goal. 

“It gives you urgency” 

Investindustrial’s sustainability credentials were already well established. The European-based group, which specialises in mid-market industrial, services and healthcare companies, first measured its carbon data in 2007 and first made public its portfolio carbon data in 2016. 

It became a signatory of the Net Zero Asset Managers (NZAM) initiative in 2021 and has since set science-based targets, earning widespread recognition on climate action in private markets. This includes B Corp certification as well as several industry ESG awards over the past 10 years. It was also one of the first private equity investors to use NZIF as part of its reporting in 2023. 

“NZIF gave us a timeframe element which is really clear,” Serge explained: “It gives you that urgency. From when we acquire a company we have, say, two years, within which it needs to be at a certain net zero alignment stage. That really focuses the attention on what needs to be done to achieve that.” 

The guidance suggests a four-stage assessment of a portfolio company’s alignment with net zero, which considers various stages alongside fund vintage milestones. Investor progress is measured through four clear targets which vary by scenario, including whether the investor is a GP, LP, or by asset class and fund type. 

Serge explained that this time-bound focus, together with how NZIF can be used alongside other existing guidance, such as The Science Based Targets initiative (SBT) for PE and the Private Markets Decarbonisation Roadmap, helps PE managers demonstrate a decarbonisation path to investors: 

“[Using NZIF] Any firm can go and explain to its stakeholders what it is doing and where it is going. It’s not your own definition – here you have a clear set of data for comparison.” 

Value creation 

Aligning investment strategies with net zero is part of risk management, but Serge points out that senior leaders at Investindustrial take more notice of the benefits doing so adds to the value creation process: “You also start to measure the business opportunity and the competitive advantage for each portfolio company.” 

“Sustainability should be part of the discussion and action plan in relation to risk, governance, in growing the top line and improving the bottom.”

He listed several examples, including a portfolio company where close attention to the European Union Emissions Trading System (EU ETS) reduced costs significantly over the holding period as the regulated carbon price increased. 

In another case, a portfolio company was invited to tender by its biggest customer, a large multinational which was asking for unreasonable price reductions. During the tender process, it became clear that the portfolio company was the only vendor with a credible climate transition plan – a mandatory requirement for the contract. Suddenly, it was the portfolio company with the negotiating power. 

Serge believes that these competitive advantages are especially relevant in private equity. PE investors often have longer holding periods and majority control, allowing them to support their portfolio companies in implementing long-term sustainability and decarbonisation programmes. Focusing on these benefits is the advice he would give to other firms considering decarbonisation: 

“You don’t have to make a climate commitment now, but there are steps you can take. Understand your portfolio, make it part of your internal process,” he said: “Sustainability should be part of the discussion and action plan in relation to risk, governance, in growing the top line and improving the bottom line. These are core to the private equity value creation model.” 

A missed trick 

Reflecting on the guidance, Serge is certain that NZIF can be a shortcut for new adopters in the industry: “Our journey started in 2007, with a comprehensive decarbonisation plan which has been ongoing now since 2016. What took us close to 10 years shouldn’t take other firms the same length of time. We have shared what we have learnt through NZIF so other firms that are later adopters can benefit from this.” 

“Behind new ‘green’ companies, with higher valuations and uncertain futures, there are many established companies primed for a pivot.”

He also highlighted a particular area of interest where some European-based LPs are looking to increase their allocation to net zero-focused funds: 

“I think there’s a missed trick in the transformation of industries – I call it grey to green,” he said, explaining that behind the new ‘green’ companies, with higher valuations and uncertain futures, there are many established companies primed for a pivot: 

“There are great opportunities if you look at infrastructure, industrial manufacturing and their value chains. Companies that have competence but have not been able to enter into sectors such as solar panels, wind farms and EV components, as examples, may now be extremely well positioned to service these high-growth sectors. It would be a missed opportunity not to allocate capital to those businesses.” 

Translating sustainability requirements into the language of opportunity and risk is core to Serge’s ethos. Now, it is hoped that the Net Zero Investment Framework Component for Private Equity will drive more progress towards net zero and competitive advantage for those that use it. 

Download the NZIF’s Component for the Private Equity Industry here.

As the 28th Conference of the Parties (COP28) to the United Nations Framework Convention on Climate Change unfolds, many investors will be paying close attention to clear policy signals that pave the way for the finance sector to strengthen its role in enabling the net zero transition amid challenging external headwinds.

Since last year’s COP27, signatories of the Net Zero Asset Managers (NZAM) initiative have actively contributed to global efforts to limit warming to 1.5 degrees Celsius by continuing to deliver against their voluntary net zero commitments.

NZAM signatories made their individual commitments with the expectation that governments will follow through on their own pledges to ensure the objectives of the Paris Agreement are met. With all eyes on Dubai, it is critical that all efforts are made to create a policy environment which is not only supportive and matches the ambition of investors who have set targets, but enables them to deliver on their net zero commitments.

Energising global finance toward net zero

Since its launch in December 2020, the NZAM initiative has grown to include over 315 asset managers, collectively responsible for more than $57 trillion in AUM. Within just three years, NZAM has become a vital platform for asset managers looking to publicly set and disclose their net zero targets in a comprehensive and consistent manner.

The voluntary initiative represents signatories from all regions of the world and more than half of all professionally managed AUM globally.[1] Over 244 signatories have now disclosed their targets and 193 have reported their progress via the PRI and CDP reporting frameworks. This is in line with the requirement for signatories to disclose targets within one year of becoming a signatory and begin reporting in the first reporting cycle following their initial disclosure.

Integrating climate responsibility into investment practices: a fiduciary duty

Climate change presents material financial risks and opportunities to portfolios of all sizes. Swiss Re[2] predicts a reduction in global GDP ranging from at least 10% up to 18% by mid-century, under a scenario where global average temperatures rise between 2.6 and 3.2°C above pre-industrial levels. Among others, economists from the World Economic Forum,[3] the Network for Greening the Financial System,[4] and the Intergovernmental Panel on Climate Change[5] have voiced deep concerns for the stability of the global economy, predicting substantial economic losses if global emissions persist on their current trajectory.

In this context, signatories have a fiduciary duty to their clients and beneficiaries to preserve the long-term financial value of assets. This involves protecting these assets from the physical and transition risks associated with climate change, thereby ensuring the stability and sustainability of their portfolios.

Broadening methodological horizons to facilitate investor target expansion

Actively managing climate-related financial risks and opportunities is a complex process, and will take time and dedicated research. With net zero frameworks being relatively nascent, there is not yet guidance for all asset classes and investment strategies.

For example, methodologies for the analysis of financed emissions have matured more rapidly in public equity and corporate fixed income compared to sovereign bonds. This is one reason why many signatories include less than 100% of their assets in scope when setting initial targets – this is to be expected and will decrease over time as guidance evolves.[6]

However, progress is being made and just in the last year, guidance for a broader range of asset classes has been released. The Network Partners that deliver NZAM are working hard to support signatories by developing additional investor guidance for the three methodologies endorsed by the initiative. This is exemplified by the impending release of the expanded Net Zero Investment Framework (NZIF) 2.0 in 2024. Currently utilised by over half of signatories, this updated framework will integrate a wider range of asset classes and thematic investment strategies and enable investors to set their individual targets over a greater proportion of their portfolios.

The need for an enabling policy environment

Investors embarking on the journey to net zero cannot navigate the transition alone. The continued progress of the investment community in managing climate-related risk and opportunity depends on action by policymakers and regulators.

In accordance with NZAM Commitment 9, signatories are actively engaged in policy advocacy, pushing for a supportive policy environment that aligns with the goal of achieving global net zero emissions by mid-century. However, many still lack dedicated teams or the capacity to engage in extensive policy advocacy activities. This underscores the need for greater dialogue between investors, governments and other key actors to work towards creating an enabling policy environment that facilitates investors deploying significant capital at the pace and scale required to support governments’ growing responsibilities on climate.

Looking ahead

The journey towards a net zero future is a multi-faceted, multi-decade endeavour. It is a shared responsibility and requires concerted efforts from all stakeholders, including investors, companies, policymakers, and regulators.

The work undertaken by investors will play a central role in steering the industry towards comprehensively accounting for the risk-adjusted implications of climate change in their portfolios. However, this transformative change won’t occur overnight and cannot unfold in isolation. The policy landscape must align with and support these sustained efforts.

The upcoming NZAM Progress Report, slated for publication early next year, will provide a more comprehensive overview, drawing on the initiative’s 2023 reporting season. It will delve deeper into the achievements of signatories, their impact on the financial industry, and ongoing efforts to address the economic implications of the climate crisis.

 

[1] Based on 2022 data. https://www.bcg.com/publications/2023/the-tide-has-changed-for-asset-managers

[2] https://www.swissre.com/institute/research/topics-and-risk-dialogues/climate-and-natural-catastrophe-risk/expertise-publication-economics-of-climate-change.html

[3] https://www3.weforum.org/docs/WEF_Global_Risks_Report_2023.pdf

[4] https://www.ngfs.net/sites/default/files/medias/documents/conceptual-note-on-short-term-climate-scenarios.pdf

[5] https://www.ipcc.ch/report/ar6/syr/downloads/report/IPCC_AR6_SYR_LongerReport.pdf

[6] Signatories commit to “Review our interim target at least every five years, with a view to ratcheting up the proportion of AUM covered until 100% of assets are included”. NZAM Commitment Statement.

Originally published by IIGCC

We explain what this reclassification means for investors using the net zero investment framework (NZIF) – the most widely used net zero framework for investors – to develop net zero targets and transition plans.  

In October 2023 the Agriculture, Forestry and Fisheries (AFF) sector was reclassified as ‘high impact’ under NZIF, joining other high impact industries chosen because of the substantial greenhouse gas emissions created during their operations, or when their product is used. Examples of other high impact sectors include mining and oil and gas.

The criteria for a high impact company to be considered ‘aligned’ under the alignment maturity scale as outlined in NZIF – or on track to hit their net zero targets – is more stringent than for those in lower impact sectors. Most notably, high impact companies must possess a well-defined decarbonisation plan and allocate capital in accordance with it. Agriculture, forestry and fisheries companies will now also have to satisfy this additional alignment criteria.

The reclassification of the AFF sector will not affect net zero targets, but it will influence the actions that investors take to achieve their targets.

Dr Adrian Fenton, IIGCC’s Senior Investor Strategies Programme Manager, said: ‘The reclassification of the AFF sector as high impact will require investors who want to achieve their net zero targets to intensify their engagement with portfolio companies associated with the sector.’

Land and Sea

According to the Intergovernmental Panel on Climate Change (IPCC), emissions linked to ‘Agriculture, Forestry, and other Land Use’ account for approximately a quarter of anthropogenic global greenhouse gas emissions – those caused by human activity.

This occurs mainly through tropical forest deforestation, with agriculture accounting for between 10 and 12% of global emissions from 2000 and 2010, according to the IPCC. Land use and land use change accounted for a further 9 to 11%. Importantly, many of the suggested options for mitigating emissions also come from this space, perhaps most significantly through avoided deforestation.  

In the water, fisheries contribute significantly to global carbon emissions. Fishing boats that trawl the ocean floor release ‘as much carbon dioxide as the entire aviation sector’, according to one study from 2021. Destroying marine ecosystems not only decreases the capacity of oceans to absorb carbon, it also releases carbon stored in marine organic matter. Shrimp farms leading to mangrove deforestation is another concerning trend as mangroves offering a vital carbon-storing or sequestration opportunity. 

Protect carbon stocks 

While NZIF mainly focuses on the greenhouse gas emissions associated with the AFF sector, experts increasingly recognise that to effectively reduce these emissions, biodiversity and local livelihoods must also be supported.   

‘Biodiverse ecosystems tend to absorb more carbon and are more resilient to impacts such as droughts, fires, and extreme weather events’, explained Norah Berk, IIGCC’s Senior Programme Manager for Nature: ‘With climate change increasing the frequency and severity of disturbances, supporting biodiverse ecosystems is crucial to protect carbon stocks and maintain the carbon absorption capabilities of ecosystems.’

One way investors can engage with companies in the sector is through Nature Action 100, a new global investor engagement initiative launched and co-led by IIGCC and Ceres which aims to drive greater corporate ambition and action to reverse nature and biodiversity loss. More than 200 investors representing $25 trillion in assets have signed on to engage with a list of 100 focus companies as part of the initiative. 

Over a third of the Nature Action 100 companies are within the AFF sector and many of the remaining companies depend on this sector for major inputs into their products, offering investors an opportunity to engage proactively with the sector to deliver real world emissions reductions.

Participating investors called on companies to complete six key actions, which if achieved, should help lower nature loss and associated greenhouse gas emissions.  

The reclassification of Agriculture, Forestry, and Fisheries as a high impact sector within NZIF will encourage investors to redirect their attention towards the transition risks associated with Agriculture, Forestry and Other Land Use. To address such risks, increased engagement with companies to scale practices that foster resilient ecosystems and sustainable livelihoods will be required. The hope is that initiatives like Nature Action 100 can support this requirement. 

• Less than two years since the initiative launched, the latest disclosures take the total number of asset managers that have set initial targets to 169.
• The initiative continues to grow, with 21 managers joining the initiative since May 2022, bringing the total to 291, representing more than USD 66 trillion in AUM.
• New signatories include Northern Trust AM and AllianceBernstein.

86 asset managers – the largest group to date – have disclosed their initial targets for the proportion of assets managed in line with achieving net zero by 2050 or sooner. All targets are now available on the Net Zero Asset Managers initiative (NZAM) website and follow May’s target disclosure report.

The latest targets mean that, collectively, approximately USD 21.8 trillion – out of a possible USD 55.3 trillion managed by the asset managers who have set targets to date – is now committed to be managed in line with achieving net zero by 2050 or sooner.

A starting point only

The initial targets are only a starting point and represent what asset managers can feasibly commit to today.

Collectively signatories have now committed on average 39% of assets to net zero by 2050, with all NZAM signatories committing to ratchet up their assets committed to net zero with a view to reaching 100%. Achieving this, however, is dependent on numerous factors including the mandates agreed with clients, clients’ and managers’ regulatory environments, supportive policy environments and the development of target setting methodologies for all asset classes.

For the latter, most targets set to date cover listed equity and fixed income due to available target setting methodologies for both asset classes, whereas fewer cover other asset classes, such as private equity and infrastructure, due to the nascency of supporting target setting methodologies. NZAM’s intention is that as methodologies develop to cover more asset classes, as illustrated by the ongoing development and broadening of the Net Zero Investment Framework (NZIF), additional asset classes will be incorporated into targets.

Approaches to target setting

Across the 169 initial targets submitted to date, 87 use the Paris Aligned Investment Initiative Net Zero Investment Framework (NZIF), 39 use the Science Based Targets initiative for Financial Institutions (SBTi), 9 use the UN-convened Net Zero Asset Owner Alliance Target Setting Protocol (TSP), 23 use a combination and 11 use own/other methodology.

Network Partners

Stephanie Pfeifer, CEO, IIGCC, said: “In less than two years the Net Zero Asset Managers initiative has managed to significantly raise the scale of ambition towards net zero across the global asset management industry. 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 degrees becomes more distant.”

Rebecca Mikula-Wright, CEO, the Asia Investor Group on Climate Change (AIGCC) and the Investor Group on Climate Change (IGCC), said: “As more investors join these initiatives, set their initial targets, and get access to the tools and networks that support their work, they get themselves on a faster trajectory to managing down the risks of climate change, and positioning themselves to invest wisely in the transition.”

“Global investor collaboration has been critical to progress towards net zero, and a holistic approach of engaging with policy makers and business is essential for the clean energy transition to accelerate and to scale the investment required by 2030, only 85 months away.”

Mindy Lubber, CEO and President, Ceres, said: “Asset managers from all over the globe have pledged to support aligning their investments and portfolios with a net zero future and joined the Net Zero Asset Managers initiative because they know that transitioning the economy away from carbon intensive operations and production of goods is underway and the only trajectory for a thriving, sustainable economy. The progress these asset managers have made in transitioning their own portfolios provides some assurance that capital flows are gradually shifting to where they need to be.”

David Atkin, CEO, Principles for Responsible Investment (PRI), said: “This latest round of targets, released by NZAM signatories, is a welcome indicator of the ongoing shift to a global net zero financial system. 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. But these targets should be welcomed, as a strong indicator of investor ambition, and as a baseline for future progress.”

ENDS

Media contacts

For more information or further comment contact:

Asia Investor Group on Climate Change (AIGCC): Tammie Kang, Communications Manager – tammie.kang@aigcc.net

Ceres: Barbara Grady, Communications Manager – grady@ceres.org

Investor Group on Climate Change (IGCC): Fergus Pitt, Director of Media and Communications – fergus.pitt@igcc.org.au

Institutional Investors Group on Climate Change (IIGCC): Ross Gillam, Head of Media Relations – rgillam@IIGCC.org

Principles for Responsible Investment (PRI): Joseph Cockerline, Communications Specialist – joseph.cockerline@unpri.org

About the Net Zero Asset Managers initiative

The Net Zero Asset Managers initiative is an international group of asset managers committed to supporting the goal of net zero greenhouse gas emissions by 2050 or sooner, in line with global efforts to limit warming to 1.5°C; and to supporting investing aligned with net zero emissions by 2050 or sooner. The Net Zero Asset Managers initiative launched in December 2020 and aims to galvanise the asset management industry to commit to a goal of net zero emissions. The initiative is endorsed by Investor Agenda and governed by six investor networks – also referred to as the ‘Network Partners’. The Steering Committee of the Network Partners’ CEOs is responsible for the coordination and implementation of the initiative, which includes ensuring that relevant support is provided to signatories to enable best practice implementation of the commitment. The initiative is open to any asset manager globally that is also a member of one of the Network Partner networks. For more information on the initiative please contact us.

https://www.netzeroassetmanagers.org/

Since the launch of the Net Zero Asset Managers initiative in December 2020 with an initial group of 30 signatories, and building on the considerable momentum of the initiative so far, more than 291 signatories, representing over USD 66 trillion in AUM, have joined and committed to align their portfolios with achieving net zero by 2050 or sooner. This includes 21 new signatories who have joined since the last target disclosure update in May 2022.

Since the last target disclosures report, the network partners have developed the NZAM website to enable signatory targets to be accessed online via individual pages. This will make it easier to review initial and resubmitted targets and facilitate the network partners in updating progress on an ongoing basis when signatories submit initial and updated targets, as required by the ten-point commitment statement.

NZAM is one of the investor-focused financial sector alliances of the Glasgow Financial Alliance for Net Zero (GFANZ) that brings together leading net zero initiatives across the financial system, to accelerate the transition to net zero emissions by 2050. It is also a formal partner of the UNFCCC’s Race to Zero campaign.

The Net Zero Asset Managers initiative is delivered by six investor networks. For more on how the initiative operates, see here.

Since COP26, the Steering Committee has met 5 times and the Advisory Group has met 2 times, focusing on how to ensure effective implementation of the initiative, and to ensure credible action by signatories in relation to their net zero commitments. The initiative also held 2 biannual meetings of all signatories which have focused on supporting them in setting and implementing targets, and for more longstanding signatories, compliance with annual reporting requirements.

Target disclosures

Almost two years on from the initiative’s launch and following publication of a second set of asset managers’ initial targets in May 2022, a further 86 asset managers have now disclosed their initial targets for the proportion of assets manged in line with achieving net zero by 2050 or sooner.

All signatory’s targets, including new and previously submitted ones, are now available on the Net Zero Asset Managers initiative website.

The latest disclosures take the total number of asset managers setting initial targets to 169. 21 additional signatories have joined the initiative since May 2022, bringing the bringing the total to 291, representing more than USD 66 trillion in AUM.

The latest targets mean that, collectively, approximately USD 21.8 trillion – out of a possible USD 55.3 trillion managed by the asset managers who have set targets to date – is now committed to be managed in line with achieving net zero by 2050 or sooner. This represents around 39% of total assets.

We have also seen 63 managers commit more than 75% of their assets and 97 exceed 50%.

29 targets are currently still being reviewed by the initiative. 13 targets are non-complaint as they were not submitted ahead of the 6 July and 15 October deadline to publish the latest target disclosures on 9 November, to coincide with Finance Day at COP27. Network partners will assess these when they are ready and signatory profiles will be updated on the website once this is complete.

Those unable to commit 100% at present, due to business model or methodology challenges, have provided information on plans to increase their proportions of assets to be managed in line with net zero, and subject to interim targets, in the near term. This is consistent with the expectations of the initiative that percentage of AUM will increase over time to reach 100%.

Target setting methodologies

All disclosing signatories provide information on the interim targets that have been set in relation to the proportion of assets managed in line with net zero, including the science-based scenarios used to determine these targets. The overwhelming majority have used one, or a combination, of three endorsed target setting methodologies:

• Paris Aligned Investment Initiative’s Net Zero Investment Framework (NZIF) – 87 signatories
• Science Based Targets initiative for Financial Institutions (SBTi) – 39
• Net Zero Asset Owner Alliance Target Setting Protocol (TSP) – 9
• Combination – 23
• Own/other methodology – 11

For more on target setting approaches, see here.

Where asset managers have not used an endorsed methodology, or a methodology has not been used in full, the network partners will continue to engage and support signatories to ensure effective and science-based implementation of targets and strategies going forward. For signatories indicating use of the SBTi methodology, it is noted that the process for target setting is as follows:

• Committing to a Science Based Target via a letter of intent (optional)
• Developing a target in line with SBTi criteria
• Presenting target to SBTi for official validation (within 2 years of committing)
• Communicating this validation to stakeholders
• Reporting progress against these targets annually

Asset managers disclosing targets to the NZAM are not specifically required to have committed or have targets validated by SBTi at the point of this disclosure. In addition to information on targets, and in light of the network partners’ expectation that signatories have science-based policies on investment in coal and other fossil fuels, asset managers were invited to disclose information on their policies. Signatories that do not have broad policies in place were able to indicate how they were planning to consider this issue.

Further detail of each asset manager’s specific proportion and targets is set out on individual signatory pages on the NZAM website, available here. The network partners have published the key elements of the information provided by each signatory, in relation to the initial proportion of assets to be managed in line with net zero and interim targets set in relation to those assets. This information is based on information self-reported by the signatories, and there is therefore variation in the way it has been prepared. However, while network partners validate methodology usage, publication does not imply network partner verification of information provided or targets set. All asset managers are expected to provide further information on their compliance with all elements of the commitment, including setting out a climate action plan, as part of the annual disclosure and reporting process.

For more on transparency and accountability, see here.

For consistency and aggregation, all asset manager’s proportion of AUM was requested to be disclosed in USD. The network partners used the figures as provided by the asset manager.

Key themes highlighted

During the target disclosure and review process for the May 2022 progress report, a number of prominent themes were identified by asset managers. Analysis of target disclosures for this November 2022 update reinforces that asset managers are operating against a similar backdrop of challenges, which has implications for the action asset managers are currently able to take and influences the approaches taken to setting targets.

Collectively signatories have now committed on average 39% of assets to net zero by 2050, with all NZAM signatories committing to ratchet up their assets committed to net zero with a view to reaching 100%. Achieving this, however, is dependent on numerous factors including the mandates agreed with clients, clients’ and managers’ regulatory environments, supportive policy environments and the development of target setting methodologies for all asset classes.

1) The geopolitical backdrop

These targets are being set against an ongoing challenging geopolitical backdrop. The war in Ukraine is entering its ninth month, following Russia’s brutal invasion in February 2022. The current energy crisis has increased short-term demand for fossil fuels and had a drastic impact on the cost-of-living for many individuals. The politicisation of ESG issues more broadly persists, which we recognise add a layer of complexity to the target setting process.

There continues to be increased variation in the regulatory and policy environments that managers are operating in. This affects their ability to shift existing funds towards net zero alignment and can impact the level of client demand for such a shift. There are a number of cases where, due to policy changes or engagement with clients, asset managers have been able to commit a significantly higher proportion of assets than would have been possible even a few months ago. But equally, there are some who are operating in less supportive regulatory environments and are working to overcome some of the current constraints. For organisations that operate globally, they must balance a range of jurisdictional requirements when setting targets and implementing their net zero commitments.

2) Approaches to target setting

Given the wide variety of business models, geographic footprints and asset class mixes amongst the asset management community – which is reflected within the NZAM signatory base – we expect to see variation in the approach to target setting and what is achievable in terms of the initial proportion of assets managed in line with net zero.

To reflect this and provide flexibility to signatories, three target-setting methodologies endorsed by NZAM – the Paris Aligned Investment Initiative Net Zero Investment Framework, Science Based Target initiative for Financial Institutions and the UN-convened Net Zero Asset Owner Alliance Target Setting Protocol. All three methodologies include different options for target setting, or the possibility to set a combination of targets, allowing signatories to take either a ‘top-down’ emissions reduction approach or a ‘bottom-up’ portfolio coverage approach, or a combination of both.

A portfolio emissions reduction approach is an intuitive method of demonstrating alignment with a fair share of the 50% reduction of emissions required by 2050 but can encourage investors to sell high carbon assets rather than engaging to drive real world impact. Meanwhile, the portfolio coverage approach focuses on getting companies themselves onto a decarbonisation pathway which achieves real world reductions but can be more difficult to determine the portfolio emissions impact. This is why the initiative encourages the use of a combination of targets and actions to ensure real world impact while also being able to effectively track emission reductions. It has also built in some safeguards to ensure managers are engaging with companies across their entire AUM and focusing on both overall reductions and real-world impact.

3) Variations in business model and investment approach

It is important to remember that the money that asset managers invest is not their own – they are managing it on behalf of their clients and, depending on their individual business model, they could have thousands of different clients invested across hundreds of funds. Making changes to how these funds invest and what they invest in is often a complicated process that requires consultation with a number of stakeholders.

From an NZAM perspective, asset managers’ initial targets represent a starting point, often made up of the funds that can be most easily aligned with net zero. However, many have indicated that there are ongoing conversations with clients and other stakeholders which they expect to result in significant increases in the proportion of AUM managed in line with net zero in future. This is consistent with the terms of the NZAM commitment, which requires managers to review their target at least every five years and encourages them to do so more frequently where possible.

Where funds are actively managed, the fund manager has greater power to decide how the money is allocated and which companies to invest in. However, for passive investments or index funds it is more difficult. These investments typically track a benchmark and do not allow for active stock picking or deviation from the benchmark. It is possible for passive funds to implement additional criteria, but this cannot be done without changing the fund’s terms and conditions, which would need to be accepted by existing investors in the fund. While there are some net zero index funds that have been set up with additional criteria applied, this is a relatively recent development and there are far more funds that do not have an explicit net zero objective.

However, as long-term owners of the assets that they hold – at least for as long as the companies remain in the benchmark – index funds have an important responsibility when it comes to engaging with the companies they are invested in. Investment stewardship is a key mechanism for encouraging company management to better understand and address material climate risks and work towards achieving net zero emissions by 2050 or sooner. The challenge around aligning index funds more broadly will be an area of focus for network partners in the coming months, and one that they will working collaboratively across the sector to address.

4) Availability of methodologies and data

For many asset managers a key constraint identified is the absence of methodologies for accounting for specific asset classes or measuring alignment to net zero. Several managers noted that this was the case for derivatives, private equity, green bonds, sovereign bonds, covered bonds, structured products and cash, among others. There are a number of efforts in train, supported by the network partners and individual managers, to address these gaps in methodologies, which will allow a broader range of asset classes to be included in future.

Similarly, data quality and availability continue to be challenges. Many have noted that they only have included strategies, funds and geographies where data quality and availability was sufficient to underpin robust science-based target setting. However, they are continuing to make efforts to gather relevant data to enable setting of additional targets or broadening the scope of current targets going forward.

The initial targets are only a starting point and represent what asset managers can feasibly commit to today. For instance, most targets cover listed equity and fixed income thanks to available target setting methodologies for both asset classes, whereas fewer cover other asset classes, such as private equity and infrastructure, due to the nascency of supporting target setting methodologies. The intention is that as methodologies develop to cover more asset classes, as illustrated by the ongoing development and broadening of the Net Zero Investment Framework (NZIF), additional asset classes will be incorporated into targets.

Since launching, 4 managers have resubmitted higher targets (including 1 in this latest wave), highlighting how targets are not static and intended to move forwards over time. The initial targets are just that, a starting point.

• Less than 18 months since the initiative launched, 83 asset managers have set initial targets, with 39% of their assets (USD 16 trillion) now committed to be managed in line with achieving net zero by 2050 or sooner 
• Most targets are from those who joined the initiative in March and April 2021, with some asset managers also disclosing early or updating their initial targets  
• 53 asset managers have joined the initiative since November 2021, bringing the total to 273, representing more than USD 61.3 trillion in assets under management 

• New signatories include T. Rowe Price, Credit Suisse Asset Management and Frontier Investment Management  

43 asset managers have disclosed their initial targets for the proportion of assets managed in line with achieving net zero by 2050 or sooner, according to the latest Net Zero Asset Managers (NZAM) initiative target disclosure report. This follows the inaugural NZAM report published in November 2021.   

The latest targets mean that, collectively, approximately USD 16 trillion – out of a possible USD 42 trillion managed by the asset managers who have set targets to date – is now committed to be managed in line with achieving net zero by 2050 or sooner, and subject to targets consistent with a fair share of the 50% global emission reduction by 2030 identified as necessary in the IPCC special report on global warming of 1.5°C. This sum represents approximately 39% of those managers’ assets – up from 35% when the first set of targets were published at COP26.  

Some managers who had already set targets, including AXA Investment Managers and Wellington Management have demonstrated greater ambition by updating their initial targets from November 20211. Both AXA and Wellington have increased their targets for the proportion of assets managed in line with achieving net zero by 2050 or sooner – from 15% to 65% and 10.6% to 32.4% respectively.  

Investor signatories 

Marco Morelli, Executive Chairman, AXA Investment Management, said: “Since our first submission in October, we have further intensified our efforts across the whole business to develop an approach which is robust and can be implemented in an effective manner by investment teams, meaning our revised figure now stands at 65% of total assets managed in line with net zero by 2050.” 

“Announcements and decisions made by policy-makers in different locations to encourage the financial sector to continue to play a leading role in the transition, for instance Article 29 of the Law Energy-Climate in France, gave us more comfort on some of our points of attention in relation to assets outside of what we first deemed as eligible. We also moved from a bottom-up approach at fund level to a top-down approach at asset class level, specifically in relation to third party assets. 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.” 

Edward Mason, Director, Generation Investment Management, said: “Achieving net zero emissions by 2050 on a 1.5C pathway across the global economy and the halving of global emissions this decade will require sustained action across all elements of the NZAM commitment by all signatories. We have unquestionably seen a positive start towards these monumental goals, but we are now into the hard work, year on year, of delivery.” 

Ben Way, Group Head, Macquarie Asset Management, said: “As we aspire to become a global leader in sustainable asset management, we know that action, supported by evidence, is the most important step. Initiatives like Net Zero Asset Managers play an important role in helping us track our progress against delivering on our ambition to manage and invest our portfolio in line with net zero emissions by 2040. We welcome the release of this progress report which highlights the positive progress we have made across our global portfolio since we became a signatory to the initiative just 12 months ago. Delivering on our net zero ambition is complex and influenced by many factors, however we remain focused on partnering with our investors, portfolio companies, regulators, peers, and a wide range of stakeholders to drive this mission critical work.”  

Wendy Cromwell, Vice Chair and head of sustainable investment at Wellington Management, said: “We are proud of our net zero commitment of $436 billion and the solid foundation we are building. We look forward to continuing to work with asset owners on their decarbonization goals, engaging with companies to assess preparedness for a low carbon transition, and serving on net zero related advisory boards and working groups to help enhance tools and methodologies. We plan to share periodic updates on our asset level commitment as our methodical client-by-client and strategy-by-strategy work continues.”  

Key themes 

Throughout the target disclosure and review process, several notable themes were highlighted by a number of asset managers as key drivers behind the targets presented and the approaches taken to setting them.  

One relates to the variation in business models owing to the difference in the number of clients across the different managers. While some have relatively few clients, other managers have thousands of different clients invested across hundreds of funds, which can make adjusting funds to align with net zero a lengthier process. However, many have indicated that there are ongoing conversations with clients and other stakeholders which they expect to result in significant increases in the proportion of AUM managed in line with net zero in future. 

Another key theme managers highlighted was the difference between setting targets for actively and passively managed investments. While active managers have greater power to decide how the money is allocated, alignment of index funds requires a different approach and could take longer to achieve. Addressing these challenges will be an area of focus for NZAM network partners in the coming months, and they will be working collaboratively with key stakeholders across the sector to address them.  

Other key themes noted include the differences in target-setting approaches – the three target setting methodologies endorsed by NZAM are the Paris Aligned Investment Initiative Net Zero Investment Framework, Science Based Target initiative for Financial Institutions and the UN-convened Net Zero Asset Owner Alliance Target Setting Protocol – and the importance of available methodologies across all asset classes, including derivatives, private equity, green bonds, sovereign bonds, covered bonds, structured products and cash. More information on the themes is available in the report.  

As the importance of decarbonising the global economy has only increased – as highlighted by two recent IPCC reports – the momentum of the NZAM initiative has continued with 53 new signatories joining since November 2021. This takes the total to 273 representing more than USD 61.3 trillion in assets under management. 

Network Partners 

Stephanie Pfeifer, CEO, IIGCC, said: “It is encouraging to see further commitments from the global asset management industry towards climate change and the decarbonisation of the global economy. While there is some way to go, that $16 trillion of assets are now committed to be managed in line with achieving net zero by 2050, is a more than positive start – although targets must of course still translate into action. I particularly welcome those who have been proactive and ratcheted-up their initial targets for in scope assets from those set only six months. I would encourage other managers with existing or yet to be set targets to be just as ambitious and proactive.”     

Rebecca Mikula-Wright, CEO, the Asia Investor Group on Climate Change (AIGCC) and the Investor Group on Climate Change (IGCC), said: “In the 18 months since NZAM launched, the world’s biggest asset managers have started the on journey of setting targets and getting their portfolios on track for net zero by 2050. This momentum must continue; climate is a risk that can’t be divested from, so investors will need to use their influence over capital flows, their influence on companies and their voice to policy-makers to speed up the transition to a net zero global economy.” 

Paul Simpson, Chief Executive Officer, CDP, said: “CDP is encouraged by the growing number of asset managers committing to decarbonize their portfolios, setting net-zero targets and increasing the proportion of their assets to be managed in line with those targets. However, the world is not yet on track to meet the goals of the Paris Agreement to limit warming to 1.5 degrees and we are running out of time to do so. As a sector that plays a critical role in the just transition to a net-zero and nature positive world, we look forward to seeing increasingly ambitious targets from asset managers, which translate into action and accountability.”   

Mindy Lubber, CEO and President, Ceres, said: “We applaud the asset managers who have set targets for a majority of their assets to align with the global goal of limiting temperature rise to no more than 1.5 degrees. We are most encouraged by the steady growth in the number of asset managers setting targets and increasing the percentage of their assets covered by those targets. The world is on a dangerous precipice regarding climate change risk, and all investors need to think about long-term returns and strategies for growth instead of short-term gains or quick and fleeting profits. The viability of the global economy and health of the planet and its people significantly depend on achieving a 50% reduction in global greenhouse gas emissions by 2030.”    

David Atkin, CEO, Principles for Responsible Investment (PRI), said: David Atkin, CEO, Principles for Responsible Investment (PRI), said: “The targets announced today through NZAM are a clear statement of intent from investors. We know that climate risk is financial risk, and that strong, decisive action is needed to keep the possibility of limiting warming to no more than 1.5 degrees alive. These commitments by investors are a key step towards the realisation of a truly net zero financial system. We’ll continue to work with NZAM signatories and the sector at large to push for even more ambitious action, taken further and faster, to help deliver meaningful action on the road to net zero.” 

ENDS 

1 The NZAM commitment requires managers to review their target at least every five years and encourages them to do so more frequently where possible. 

Media contacts 

For more information or further comment contact: 

Asia Investor Group on Climate Change (AIGCC): Tammie Kang, Communications Manager – tammie.kang@aigcc.net  

CDP: Sara Firouzyar, Senior Communications Manager – Sara.Firouzyar@cdp.net  

Ceres: Barbara Grady, Communications Manager – grady@ceres.org  

Investor Group on Climate Change (IGCC): Fergus Pitt, Director of Media and Communications – fergus.pitt@igcc.org.au  

Institutional Investors Group on Climate Change (IIGCC): Ross Gillam, Head of Media Relations – rgillam@IIGCC.org  

Principles for Responsible Investment (PRI): Joseph Cockerline, Communications Specialist – joseph.cockerline@unpri.org  

About the Net Zero Asset Managers initiative 

The Net Zero Asset Managers initiative is an international group of asset managers committed to supporting the goal of net zero greenhouse gas emissions by 2050 or sooner, in line with global efforts to limit warming to 1.5°C; and to supporting investing aligned with net zero emissions by 2050 or sooner. The Net Zero Asset Managers initiative launched in December 2020 and aims to galvanise the asset management industry to commit to a goal of net zero emissions. The initiative is endorsed by Investor Agenda and governed by six investor networks – also referred to as the ‘Network Partners’. The Steering Committee of the Network Partners’ CEOs is responsible for the coordination and implementation of the initiative, which includes ensuring that relevant support is provided to signatories to enable best practice implementation of the commitment. The initiative is open to any asset manager globally that is also a member of one of the Network Partner networks. For more information on the initiative please contact us.  

https://www.netzeroassetmanagers.org/  

• The 16 new signatories cover a broad geographic base including, the UK and continental Europe, Australasia and North America.

The Net Zero Asset Managers initiative has added 16 new signatories taking the total number of signatories to 236 with USD 57.5 trillion total AUM represented. This follows a year of significant and real progress in 2021 for the Net Zero Asset Managers initiative having only launched in December 2020.

The 16 new signatories are: BBGI Global Infrastructure S.A, Breckinridge Capital Advisors, Ethos Services SA, Findlay Park Partners, INOKS Capital SA, Kiwi Wealth Investments Limited NZ, Lindsell Train Limited, Mandarine Gestion, Nutshell Asset Management Limited, OP Real Estate Asset Management Ltd., Redwood Grove Capital, Sustainable Development Capital LLP, UBP Asset Management (Europe), Unicorn Asset Management, Whitehelm Capital and V-Square Quantitative Management LLC

Full details of the steps the investors commit to in joining the initiative can be found here.

The Net Zero Asset Managers initiative is managed globally by six founding partner investor networks: Asia Investor Group on Climate Change (AIGCC), CDP, Ceres, Investor Group on Climate Change (IGCC), Institutional Investor Group on Climate Change (IIGCC) and Principles for Responsible Investment (PRI).