The Net Zero Asset Owner Alliance (NZAO) has outlined its expectations for assets managers in private markets.
The group, whose members include big names like Alecta, PensionDanmark, Zurich and SwissRe, has published a ‘call to action’ for private markets, laying out how managers across infrastructure, private equity, private debt and real estate should be addressing climate change.
Speaking to IPE, Patrick Peura, who led the development of the report, said: “One of the reasons we wrote this paper was because our smaller members, who generally find it harder to gain the ear of asset managers, were asking for climate integration and being told: “Well, that’s not what we hear from our other clients. Sorry, we cannot accommodate you.”
Peura, who is also an ESG engagement manager at Allianz, said that NZAO’s larger members often find it easier to influence managers. “So putting our shared perspectives into one document hopefully helps all of our members to be heard.”
The group is asking private markets managers to disclose their scope 1 and 2 financed emissions for the 2023 financial year, expanding coverage to scope 3 emissions by 2024. Managers should set scope 1 and 2 emissions targets by 2025.
But Peura stressed that “climate is more than just a data challenge”.
“Many of our members have found that asset managers in private markets will often address climate by saying: ‘We’ll work on getting you emissions figures’. And our message in return is: ‘Well, no, it’s actually also about making sure our interests are understood by the underlying companies and that they are driving decarbonisation efforts across their operations. So it’s an engagement challenge too, and an expertise challenge, and a governance challenge’.”
In terms of investment, NZAO wants private managers to offer funds that support their climate objectives. They should also support fossil fuel phase outs in line with 1.5°C scenarios across broader strategies, and not provide new financing to infrastructure assets “whose purpose or emissions cannot be aligned with the Alliance’s net-zero ambitions”, the paper stated.
There is growing concern that the pressure listed companies are facing from shareholders over climate is prompting them to sell polluting assets to private markets, where scrutiny is lower.
“But our commitment is to decarbonise our entire portfolio, so it doesn’t help us if assets are simply moving from one area of our portfolio to another,” said Peura. “And it certainly doesn’t help us with the real world change that we’re looking to drive to protect our core insurance and pension businesses.”
Peura said that, while NZAO cannot decide on behalf of individual members what happens if private managers do not integrate the recommendations from the new paper, “it does seem as if the opportunities to work on behalf of asset owner clients, and to win mandates, will become increasingly difficult if they aren’t building these requests into their processes”.
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