Investors that back away from net zero could be ‘seen as negligent’, warns asset owner body

Members of the Net Zero Asset Owner Alliance (NZAOA) have warned their peers that they could be accused of neglecting their legal duties if they scale back their climate commitments.

The body, which is supported by the likes of Allianz, PensionDanmark, ERAFP, Storebrand and SwissRe, published its latest report amid waning enthusiasm for meeting the goals of the Paris Agreement.

The Transition Pathway Initiative (TPI) found this week that, while 78% of countries have now set net zero targets, “very few” have reduced their emissions so far as a result.

The lack of real-world progress has made financial institutions nervous about continuing to pursue their own climate ambitions.

Banking giant JPMorgan recently ditched its “time- and percent-bound targets” in the face of headwinds, and the Net Zero Asset Managers (NZAM) initiative removed a requirement for its members to set 2030 targets or commit to align with net zero by 2050.

There are concerns that asset owners will begin to follow suit.

In a paper – Addressing climate impacts — NZAOA acknowledged that “alternatives to climate action exist”.

“These include, among other options: reinforcing trajectories closer to the status quo; not setting climate targets; failing to encourage asset managers to act in asset owners’ best interests by considering climate risks and opportunities; and remaining silent about the alarming information received from stakeholders and business operators regarding climate risk.”

But, the group warned, “asset owners who choose this course of action could eventually be seen as negligent in executing their duties and responsibilities”.

NBIM disagrees

Not all asset owners feel the same – particularly when it comes to the role of targets.

When it launched its latest climate strategy last month, Norges Bank Investment Management (NBIM) stuck to its decision not to have a specific decarbonisation target.

“We don’t have a target for portfolio emissions in our own portfolio,” explained Carine Smith Ihenacho, NBIM’s chief governance and compliance officer, when asked which civil-society requests NBIM had not complied with when developing the new package.

“We have targets for where we expect the companies to be [on] net zero,” shge said, adding: “And the reason for that is, of course, that we invest in the world economy, and we don’t want to divest from the large emitters [in order to meet our own climate targets] – we want to stay in as an owner.”

Mandates

NZAOA also used its paper to stress that asset owners “should not be overly prescriptive” when developing mandates for their managers.

“Too much specificity blurs the lines between the differentiated responsibilities and delegation of duty that is inherent to the asset owner-asset manager relationship,” it argued.

Instead, asset owners should “clearly state their interests” and provide managers with “broad climate action expectations”.

These may include making a net zero commitment, setting minimum stewardship requirements, providing a strategic risk-management approach or detailing the role of climate scenarios, NZAOA suggested.

“It is then within asset managers’ responsibility to align their investment or stewardship approach with the mandated expectations of asset owners.”

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