There are five supporting commitments that clarify how assets will be managed in line with net zero. Managers each to commit to:
Set interim targets for 2030, consistent with a fair share of the 50% global reduction in CO2 identified as a requirement in the IPCC special report on global warming of 1.5°C
Take account of portfolio Scope 1 & 2 emissions and, to the extent possible, material portfolio Scope 3 emissions
Prioritise the achievement of real economy emissions reductions within the sectors and companies in which they invest
If using offsets, invest in long-term carbon removal, where there are no technologically and/or financially viable alternatives to eliminate emissions
As required, create investment products aligned with net zero emissions by 2050 and facilitate increased investment in climate solutions
Of these areas, it is worth noting some of the debates we had as a group. No managers suggested that Scope 3 emissions should be excluded, but limited data availability for emissions in the value chain makes this a challenging area. Offsets and carbon removal deserves careful consideration too. High quality carbon removal (such as carbon stored in soil or trees, or direct air capture technologies) is likely to play a role in meeting corporate and investor net zero commitments. We therefore do want to see it scale, but it must not come at the cost of slower action on mitigation of emissions by companies.
Another theme for discussion was whether new investment products should be specified as a commitment, or if this is unnecessary as it logically flows from the commitment. Some managers feel it is important to be clear about the need for new net zero strategies and for an evolution in existing strategies. The group has therefore committed to create new investment products as required.
Enabling change in the investment ecosystems
Some of the most illumining discussions at our meetings were on the role of asset managers within the investment ecosystem. We hope the NZAM initiative can help to drive a system-level change – becoming what we would call ‘system positive’.
This is reflected in five additional commitments signatories make. For all members, these five commitments apply across the board (that is, they are not limited to the portion of assets currently being managed in line with net zero).
We think this is a comprehensive and potent set of commitments. It includes, for instance, providing asset owner clients with information and analytics on net zero investing and climate risk and opportunity. Crucially, it embraces an active stewardship and engagement strategy, consistent with an ambition for all assets under management to achieve net zero emissions by 2050 or sooner, with a clear escalation and voting policy. Furthermore any relevant direct and indirect policy advocacy undertaken by asset manager signatories will be supportive of achieving global net zero emissions by 2050 or sooner.
There is also an explicit focus on catalysing a system level change. Specifically, managers commit to engage with actors key to the investment system, to ensure that products and services available to investors are consistent with the aim of achieving global net zero emissions by 2050 or sooner – including credit rating agencies, auditors, stock exchanges, proxy advisers, investment consultants, and data and service providers.
Finally, signatories acknowledge the importance of consistent, transparent and high quality disclosure. Each member will publish Task Force on Climate-related Financial Disclosures (TCFD) aligned disclosures annually, including a climate action plan. These will be reviewed by the Investor Agenda via its partner organisations to ensure the approach applied is based on a robust methodology, consistent with the UN Race to Zero criteria,6 and action is being taken in line with all commitments.