CCLA proposes next steps for asset manager net-zero initiative | News

A new Net Zero Asset Managers initiative (NZAM) would need to encourage asset managers to work much more closely with asset owners, who will in turn need to clearly state their climate change-related ambitions, CCLA Investment Management has said.
The investor, a large manager of charity funds in the UK and a NZAM signatory, also said the asset manager climate grouping, which is carrying out a review of its strategy, “will need to carefully consider different decarbonisation scenarios” given that the world appears off-course for keeping warming to 1.5°C.
Earlier this month NZAM suspended its activities, saying growing anti-sustainability sentiment in the US had necessitated a rethink of its strategy. BlackRock had just days before announced it was leaving the group, a move that Northern Trust has since also made.
In a statement published late last week, CCLA said it was disappointed by NZAM’s decision to suspend its activities but, after meeting with the NZAM secretariat team, understood “that they had very little other choice”.
It said coordinated action by the investment industry needed to be rebuilt, but that it recognised that due to anticipated changes in US law some asset management firms cannot, and some may choose not to, participate.
UK asset management firms could step in to provide leadership, CCLA suggested, as the country’s competition watchdog has signalled that collaboration and coordination on climate change was legal.
Flexibility for real-world focus
A NZAM that is fit for the future would also need to accept that managers can push for change in the real economy in different ways, depending on their asset classes, positioning and processes, CCLA said.
This was important as the industry’s focus needed to be on the real world, rather than mere portfolio decarbonisation, all while being “resolute that climate risk is a long-term financial risk”.
“As asset managers, we will therefore need flexibility from future initiatives in how we can contribute to accelerating global decarbonisation as well as achieving low portfolio footprints,” said CCLA.
Some in the investment industry say that driving real-world emissions reductions requires staying invested in high-emitters in a bid to influence their operations and/or business model.
Asset owner clarity
CCLA also appeared to suggest that the 1.5°C warming cap may need to be ditched as the anchor for the collaborative initiative’s decarbonisation commitment.
“The world has changed since NZAM was formed and achieving a 1.5°C target, disappointingly, seems further and further from the path that we are on,” said CCLA.
“Therefore, it is highly likely that a future NZAM will need to carefully consider different decarbonisation scenarios.”
Whatever guiding star is chosen, the goal could be neither too ambitious nor too conservative, CCLA said.
Asset owners would need to clearly set out the climate scenario they would like their portfolios to be managed for, according to CCLA.
This was because “as the world continues to diverge from the level of action on carbon that is required, it is highly likely that – at least over the short-term – returns from portfolios that follow a temperature-constrained trajectory may differ (either for good, or for bad) from those that invest based upon the presumption of business as usual”.
The charity investor said that asset owners of all sizes would need to be helped to include their climate concerns in their manager-selection processes so that a commitment to decarbonisation is included in mandates and fund rules.
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