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Investors align $16 trillion in assets with net-zero targets

31 May 2022 Amena Saiyid

Large money managers such as Danske Bank, BlackRock, and Wellington Management have agreed to align $16 trillion of their managed assets with 50% GHG reduction targets by 2030, and net-zero targets by 2050, the most recent analysis of the Net-Zero Asset Managers (NZAM) Initiative shows.

Released 31 May, the latest progress report shows these investments represent 25% of the $63.1 trillion in assets that the 273 signatories to the NZAM initiative are collectively managing. These investments also represent 39% of the $42 trillion managed by the 83 investors who have set targets so far.

However, the vast majority or 190 of the investors who signed up to NZAM have yet to set targets or release plans showing how they would approach net-zero goals.

These investments are to be found among the firms' activities in fixed income, equities, derivatives, green bonds, or sovereign bonds.

Flexibility to set climate-aligned targets

Since its inception in December 2020 with just 30 signatories, NZAM has sought to galvanize asset management sector portfolios toward the net-zero carbon goal outlined in the 2015 Paris Agreement to limit global warming to 1.5 degrees Celsius above pre-industrial levels.

Given the wide variety of business models, geographic footprints, and asset class mixes amongst the asset management sector, NZAM offered three different target-setting approaches: Paris Aligned Investment Initiative's Net Zero Investment Framework, Science Based Target initiative for Financial Institutions, and the UN-convened Net Zero Asset Owner Alliance Target Setting Protocol.

The three approaches allow NZAM signatories to choose the target that best matches their needs.

Despite this flexibility, many firms including financial ones have been slow at setting climate-aligned targets, according to a 30 May Institutional Shareholder Services (ISS) blog on the Harvard Law School Forum for Corporate Governance.

ISS said only 21% of the companies in the S&P 500 have disclosed a climate change target that has been approved by the Science Based Targets initiative (SBTi).

Geopolitical challenges

NZAM in part attributes the pace of adoption to the increasingly challenging geopolitical backdrop, where the current energy crisis—driven by supply chain shortages and exacerbated by the Russian invasion of Ukraine—has increased short-term demand for fossil fuels. Even US Secretary of the Treasury Janet Yellen has acknowledged that the present-day demand for fossil fuels may put a damper on short-term plans to move away from hydrocarbons.

However, sustainable investor networks such as Ceres, which help set up NZAM, said the analysis reveals the steady growth in the numbers of investors who are not just setting targets, but also increasing the percentage of their assets covered by those targets.

For instance, firms like US-based Wellington Management have boosted their initially committed assets. Wellington initially committed 10.6% of its assets to net-zero plans, but now has raised it to 32.4%, according to the NZAM report.

At last November's UN COP26 meeting on climate change in Glasgow, Scotland, 43 asset managers had committed $4.3 trillion of their managed assets to net-zero goals.

"This is by far the largest group of targets we've seen," Kirsten Snow Spalding, senior program director of the Ceres Investor Network, told Net-Zero Business Daily by S&P Commodity Insights 27 May.

Bringing 39% of assets under net-zero goals is "pretty good," but Spalding said it is not enough.

"We certainly hope that when the next round of targets are announced they're going to be much bigger. We hope to see 100% of their assets covered," she added.

The NZAM report lists UBS Asset Management as initially committing 20% of its $2.6 trillion portfolio in line with net-zero reduction goals. As of 31 May, NZAM said the firm had committed $235 billion of those assets.

In contrast, world's largest money manager BlackRock, which was managing $9.46 trillion towards end of September, has agreed to commit 77% of its assets to net-zero goals. Currently, 25% of the firm's investments are following science-based targets or equivalent.

Gap between commitments and signatories

So far, 11 firms managing $530 billion in assets have signed up to 100% commitments. These include Asteria Investment Managers, which has $200 million currently committed to assets with net-zero reduction plans.

S&P Global Commodity Insights Financial and Capital Markets Director Conway Irwin agrees that there's still "a gap" between the number of firms affiliated with this initiative and the number that have set targets.

Irwin said switching to net-zero targets for financial companies is a complicated process, which the report also noted.

"And we're only six months out from COP26, and it's likely that many more of these firms will want to have targets in place before COP27 in Egypt this November," Irwin added.

Among the companies, the report said, "those unable to commit to 100% at present, due to business model or methodology changes, 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."

Posted 31 May 2022 by Amena Saiyid, Senior Climate and Energy Research Analyst

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.


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