Ahead of the conclusion of the Glasgow Climate Pact negotiations, it was reported that the Net Zero Asset Managers initiative had attracted 220 signatories with $57 trillion in assets under management, including some of the largest asset managers in the United States.  These signatories included firms like BlackRock, Vanguard, SSgA, JPMorgan Asset Management, Invesco and Neuberger Berman.  Initially launched in December 2020, the initiative aims to galvanize the asset management industry to commit to the goal of net zero greenhouse gas (GHG) emissions by 2050 or sooner, in line with global efforts pursuant to the Paris Climate Agreement to limit warming to 1.5℃ relative to pre-industrial levels.  Refer to Table 1. 

We believe the commitments made by investment management firm signatories will spread across the sectors and companies in which the asset managers invest, and the pledges made by the asset management firms will, in time, extend to all its mandates, including mutual funds and ETFs as well as separate accounts.  These commitments could have wide ranging implications for the way active and passive portfolios are managed in the future as well as their performance outcomes. 

For this reason, the commitments surface a number of questions that investors should direct to their manager signatories in due course.  We have assembled the following questions to supplement the information that asset managers are required to provide within ten (10) months of signing on to the initiative. 

Ten Questions that Investors Should Direct to Signatory Investment Managers

Disclosure-Related Questions:

  1. In addition to disclosures required under Net Zero Asset Managers Initiative (NZAM),[1] how will fund shareholders be consulted or notified regarding the adoption of decarbonization goals and implementation strategies? 
  2. To what extent will such actions require prospectus amendments or shareholder votes?
  3. How might such commitments apply to external sub-advisors?
  4. Are any such changes expected to impact management fees?
  5. What are the manager’s plans, if any, for disclosing financial and non-financial outcomes linked to implementation strategies? 

Portfolio-Related Questions:

  1. What analytical framework(s) might the investment adviser adopt to simulate and achieve targets while also quantifying potential impacts, positive or negative, on portfolio holdings?  Analysis of potential impacts in the short-to-long term?
  2. What action steps are likely to be taken to transition the portfolio?  What impact on capital gains/losses?  Turnover, etc.?
  3. What are the anticipated changes in any to performance comparison indices against which performance will be evaluated? 

Passive vs. Active Management-Related Questions

  1. How will the manager’s commitment affect index funds managed pursuant to conventional indices? 
  2. Is there any consideration being given to a shift to new indices? 

Table 1: Net Zero Asset Managers Commitment

In line with the best available science on the impacts of climate change, we acknowledge that there is an urgent need to accelerate the transition towards global net zero emissions and for asset managers to play our part to help deliver the goals of the Paris Agreement and ensure a just transition.

In this context, my organization commits to support the goal of net zero greenhouse gas (‘GHG’) emissions by 2050, in line with global efforts to limit warming to 1.5°C (‘net zero emissions by 2050 or sooner’). It also commits to support investing aligned with net zero emissions by 2050 or sooner.

Specifically, my organization commits to: Work in partnership with asset owner clients on decarbonization goals, consistent with an ambition to reach net zero emissions by 2050 or sooner across all assets under management (‘AUM’), Set an interim target for the proportion of assets to be managed in line with the attainment of net zero emissions by 2050 or sooner, 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

In order to fulfil these commitments my organization will: For assets committed to be managed in line with the attainment of net zero emissions by 2050 or sooner (under commitment b) 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°CTake account of portfolio Scope 1 & 2 emissions and, to the extent possible, material portfolio Scope 3 emissions, Prioritize the achievement of real economy emissions reductions within the sectors and companies in which we 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

Across all assets under management: Provide asset owner clients with information and analytics on net zero investing and climate risk and opportunity, Implement a stewardship and engagement strategy, with a clear escalation and voting policy, that is consistent with our ambition for all assets under management to achieve net zero emissions by 2050 or sooner, Engage with actors key to the investment system including credit rating agencies, auditors, stock exchanges, proxy advisers, investment consultants, and data and service providers to ensure that products and services available to investors are consistent with the aim of achieving global net zero emissions by 2050 or sooner, Ensure any relevant direct and indirect policy advocacy we undertake is supportive of achieving global net zero emissions by 2050 or sooner

Accountability:  Publish TCFD disclosures, including a climate action plan, annually, and submit them to the Investor Agenda via its partner organizations for review to ensure the approach applied is based on a robust methodology, consistent with the UN Race to Zero criteria, and action is being taken in line with the commitments made here.  

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[1] First 12-month report and annual TCFD reporting.