The Net Zero Asset Owner Alliance (NZAOA) has outlined its engagement expectations for investment managers wanting to win and retain mandates from its 80+ members.

The body said in a document published today that “asset managers must adopt a consistent, transparent, and outcomes-oriented climate engagement strategy, which recognises that climate change poses systemic risks to asset owner portfolio returns”.

Such an approach would be “critical for asset managers’ continued ability to win mandates of clients committed to net zero,” it added.

NZAOA urged managers to adopt entity-level net-zero commitments and ensure that climate engagement was “consistent across the business, so that all manager representatives consistently reflect the asset managers’ stated ambition”.

Managers should differentiate between engagement activities undertaken to achieve those objectives, and approaches that are specific to a particular strategy or mandate, according to the paper, which also called for “internal or external verification, or assurance on engagement processes and standards”.

A spokesperson for NZAOA told IPE that the recommendation for managers to get climate engagement verified or assured “reflects the increasingly common practice to apply some level of assurance to sustainability reporting and responsible investment activities,” pointing to expectations outlined in the UK’s Stewardship Code.

“The paper calls for these governance standards to be applied to the systems and processes underpinning climate engagement to ensure they are functioning properly,” the spokesperson said.

The document also calls on asset managers to explain their approach, objectives and deadlines for securing real-world change for each engagement they undertake, adding that “all investors must transparently share their expectations of issuers and, importantly, their successes and learnings from engagement”.

NZAOA currently has 86 members, all committed to securing ‘net zero’ portfolios by 2050 at the latest. They run a combined $9.5trn. More than 60 are European pension funds and insurers, including Danica Pension, Caisse des Dépôts, BT Pension Scheme, AXA and Alecta.

“Alliance members should use the principles, requests and practices set out in this document to inform their selection, appointment, and monitoring processes, including by making them an explicit expectation within the investment mandate for asset managers,” the paper said.

“Due diligence practices conducted in the selection of asset managers offer a key opportunity for asset owners to transmit their climate expectations to asset managers.”

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