Net Zero Asset Management

The Value Of The Net Zero Asset Management Initiative

Published: 19 Jul 2022

What is Net Zero Asset Management?

As noted in our prior blog , the Net Zero Asset Management (NZAM) initiative is an international group of asset managers committed to supporting the goal of net zero greenhouse gas emissions and investing aligned with net zero emissions by 2050 or sooner. As of May 2022, NZAM has 273 firms representing over $61.3 trillion in assets under management.

Within a year of becoming a signatory, asset managers are required to disclose:

  • The initial percentage of their portfolio that will be managed in line with net zero
  • Their interim targets for assets that will be managed in line with net zero
  • The methodology used in target setting

The asset managers must also prioritize real economy emissions reductions, consider material Scope 3 emissions, increase investment in climate solutions and create investment products in line with net zero. Notably, signatories also agree to only use offsets that involve long-term carbon removal and use them when no technologically and/or financially viable ways exist to eliminate emissions.

Going beyond an investment decision

Signatories commit to work with asset owner clients on de-carbonization goals and provide them with information and analytics on net zero investing, as well as climate risks and opportunities.  Beyond the financial realm, signatories must implement a stewardship and engagement strategy, including a voting policy, to achieve net zero emissions.

Importantly, the NZAM consortium is proactively working with third parties that support investment management, such as credit rating agencies, auditors, stock exchanges, proxy advisers, investment consultants, and data and service providers.  This engagement is designed to ensure that products and services are available to support investors in making the net zero journey.  Collectively, this effort should result in a fundamental shift in mobilizing financing toward investment in companies and technologies with a focus on making real impact on climate change.

Another brick in the wall

Asset managers control a significant portion of global investment capital available to companies. Dispassionately shifting investment decisions to consider the potential risk and returns associated with financing emissions will have a significant impact on decision-making and capital allocation.  As we will cover in a future blog post, the Net Zero Asset Management is just one part of a much bigger movement to globally standardize emissions measurement, disclosure and verification.   Collectively, the financial industry will change the conversation around  the “E” in ESG – moving it from a “doing the right thing” dialogue to “what is risk versus return” question. Less emotion, more numbers and sense.