27 January 2025
On 13 January 2025, the Net Zero Asset Manager’s (NZAM) initiative announced its decision to remove its signatory list from the website and suspend activities relating to signatory implementation and reporting whilst it undertakes a consultation on the organisation’s future. This step was taken reluctantly, against the backdrop of a hostile and changing political environment that was targeting some of the world’s largest asset managers.
For those who are not aware, NZAM is an international group of asset managers who have committed, consistent with their fiduciary duty to their clients and beneficiaries, to invest in line with the aim to limit warming levels to 1.5 degrees Celsius above pre-industrial levels. This meant adopting an ongoing decarbonisation programme that leads to achieving net-zero portfolio emissions by 2050 or sooner.
CCLA was, and remains, proud to be a founder signatory of NZAM. We are disappointed with the decision by NZAM to suspend its activities, but after meeting with the NZAM secretariat team, we understand that they had very little other choice.
The main issue now is what comes next.
At CCLA, we recognise that no matter how politically inconvenient it might be, climate change is very real. Unmitigated, it poses not only a significant financial risk to the value of our clients’ investments over the long-term, but also our collective way of life. Therefore, we have no choice but to continue to act to accelerate the transition to a low and then no-carbon economy.
For this reason, despite the suspension of NZAM, CCLA’s commitment to achieve net-zero emissions on the listed equities within its portfolios no later than 2050 remains active. Similarly, we are sticking to our purpose and convictions by continuing to engage with the companies in our portfolio and with public policymakers with the aim of driving change.
But, for the future, we do think changes need to be made and we will be participating fully in the NZAM consultation. To create an initiative that truly works for our planet and our clients, we consider that the following steps will need to be taken:
- First, we believe the sector needs to be resolute that climate risk is long-term financial risk. We cannot cave to pressure to be quiet, instead we should review options together.
This will sadly mean that – due to anticipated changes in US law – some asset management firms cannot (and some may choose not to) participate in whatever comes next. But this should not stop those that can. In the UK we are fortunate that the Competitions and Markets Authority have explicitly signalled that collaboration and co-ordination on climate change is legal. Collectively, as an industry, UK asset management firms need to use this as the platform to provide leadership on a global scale as we rebuild coordinated action.
- Second, we need to focus on the real world. The investment industry on the whole is quite rightly focused on their portfolios. This is what we can control, this is what our clients own; but a low-carbon portfolio in a high-carbon world will serve no one well. 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. Different firms will be able to push for change in different ways, depending upon their asset classes, positioning, and processes.
Because of this, a future NZAM will need to carefully tread the line between establishing a common commitment to get to Net Zero while providing asset managers with the flexibility to get there through different routes.
- Third, we will need to set targets wisely. The world has changed since NZAM was formed and achieving a 1.5 degrees target, disappointingly, seems further and further from the path that we are on. Therefore, it is highly likely that a future NZAM will need to carefully consider different decarbonisation scenarios. In rebuilding the initiative, it is essential that whatever scenario chosen, it is the one that is most likely to deliver the change we need to see. If it is too ambitious, NZAM faces the risk of becoming a platform for asset managers to conduct meaningless virtue signalling by setting unachievable targets that look good to clients. However, set too conservatively, it runs the risk of not incentivising the ambitious action we so desperately need.
- Finally, as an industry, we will need asset owners to clearly state their ambition. 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. Therefore, while we believe that it is in everyone’s interests to address climate change, not everyone will act.
For this reason, like existing ‘values-based’ investing approaches (where asset owners state stocks that they do not want to hold because they contradict their values) we believe that investors will need to clearly set out the climate scenario that they would like their portfolios to follow.
In what we hope is only a short-term divergence between ambition and reality, asset owners of all sizes will need to be helped to include their climate concerns in their manager selection processes (as continuing to support firms that are doing nothing will be counterproductive) and then know how to communicate their priorities to those managing their money so that – as we already do at CCLA – a commitment to decarbonisation is included in mandates and fund rules. Therefore, a new NZAM will have to encourage asset managers to work much more closely with asset owners.
In conclusion, parts of the Net Zero Asset Manager’s initiative may have been suspended but our commitment to climate action has not. At CCLA we are committed to playing our part in developing a new approach that reflects the need for urgent action and can mobilise our industry to be a force for good.