Net zero initiative falls way short of net zero ambitions, claims report

A new report reveals that asset managers who have signed up to the Net Zero Asset Manager Initiative (NZAMI) have committed to cutting well below 20% of their emissions by 2030.

The study, by climate and investment think tank, Universal Owner, based the findings on NZAMI’s first report, released on the first day of COP26. This report documents the 2030 targets of 43 of its members.

NZAMI members chose between 0.55% and 100% of their assets under management (AUM) to be covered by the initiative, the report found.

The authors reject the notion that index fund managers are tied to investing in fossil fuels, saying there is considerable discretion managers may exercise in portfolio construction.

It also criticises NZAMI’s commitment to reduce “portfolio emissions”. This allows managers to focus emission reduction within managers’ exposure, rather than driving down real world emissions.

“Asset managers have at best committed to a 20% emissions reduction by 2030. That falls woefully short of the 50% reduction in global emissions that the IPCC and climate science tells us we need to achieve,” said Louis Fletcher, senior researcher at Universal Owner.

“At worst, most asset managers will be able to technically fulfil their targets while reducing just a few percent of their total emissions,” Fletcher said.

“Further, these targets are focused on reducing asset managers’ exposure to companies with high emissions, instead of working to actually transition those companies in the real world,” Fletcher continued.

The paper makes a series of recommendations for NZAMI, including the monitoring of companies’ internal investment decisions, committing members to tapering the provision of primary capital to misaligned companies and encouraging forceful stewardship with escalating sanctions for laggards.

It urged NZAMI to launch a joint programme to redirect index investing, so its members might make Paris-aligned index funds the default offering for clients.