Asset managers’ net-zero targets a ‘distraction or misleading’

The Net Zero Asset Managers Initiative (NZAMI) is “unfit for purpose” and requires a “major overhaul” according to a report published by the Universal Owner think tank.

The report, Failure by design, examines the targets initially set by 43 of the signatories to the initiative in May 2022. It finds that the methodology used is ‘neither standardised nor rigorous’, resulting in “ambiguity and confusion”.

Once NZAMI’s “loopholes” are taken into account, asset managers are assessed to have made pledges that are “consistent with aligning just a few percent of their emissions with net zero”.

NZAMI is a group of international asset managers committed to net-zero emissions by 2050 and has 273 signatories with assets under management (AUM) of $61.3trn. It is one of the seven alliances that comprise the Glasgow Financial Alliance for Net Zero (GFANZ).

GFANZ has recently faced internal debates about the potential conflict between fiduciary duty and environmental responsibilities.

Real-world climate impact

Thomas O’Neill, director of Universal Owner Initiatives, told Net Zero Investor: 'The analysis shows that the NZAMI target-setting process fails to commit investors to defined actions and has little relationship to real-world impact on climate.”

He added: “The targets are a distraction or, worse, misleading. Rather than placing the emphasis on the portfolio companies they have exposure to, asset managers could have more impact by committing to net-zero-aligned investment and stewardship."

In response to the report, NZAMI issued a statement pointing out that the initiative is about “raising ambition on net zero at scale and providing greater transparency” and suggesting that both of these are being achieved.

“Of course, there is always more to be done, including solving some of the more complex issues and remaining barriers that investors face, but, through the initiative and wider collaboration, steps are continually being made on all fronts.”

BlackRock’s ‘lack of binding targets’

The report highlights NZAMI’s perceived failings by examining the net-zero targets of the “Big 3” asset managers: BlackRock, State Street and Vanguard.

BlackRock is accused of “sidestepping” binding targets by merely expressing what it “anticipates”. It is said to draw on the methodology of the Science Based Targets initiative (SBTi), but “omits one of its basic precepts”.

According to the analysis: “BlackRock says that it will decide whether a company has set a valid net-zero target, whether or not the SBTi has validated their target.”

However, BlackRock responded by highlighting that the money it manages belongs to clients, “many of whom make their own asset allocation and portfolio construction decisions”.

BlackRock said that around 25% of its AUM with respect to corporate and sovereign issuers is invested for clients in issuers with “science-based targets or equivalent”.

“As the transition proceeds and issuers and asset owners continue to position themselves in front of it, we anticipate that, by 2030, at least 75% of BlackRock corporate and sovereign assets managed on behalf of clients will be invested in issuers with science-based targets or equivalent.”

Similar criticisms were levelled at State Street and Vanguard. State Street’s target was “so ambiguous that it is virtually impossible to establish what it has committed to”, while Vanguard had ‘set a non-target target” based on an undefined “net-zero glidepath”.

Net Zero Investor contacted both State Street and Vanguard for comments. State Street declined to comment, while Vanguard had not responded by the time of publication.