Almost all big asset managers worldwide are now members of the Net Zero Asset Manager initiative (NZAM), the largest sectoral alliance gathering financial institutions to head towards net zero (1). Members are committed to halve their financed emissions by 2030 (2). A progress report is expected to shortly be released by NZAM, with information from asset managers on their targets and how they intend to reach them. In this blog post Reclaim Finance lists the key criteria for credible and robust decarbonization strategies by asset managers, including a closer look at key problems with the targets recently published by AXA IM, BlackRock and State Street.

NZAM’s second progress report is supposed to be released in the coming weeks. It will  include the targets and strategies of the largest asset managers worldwide, including BlackRock, State Street, and (the notoriously opaque) Vanguard in the US, as well as AXA IM and Amundi in Europe. The quality of their plans will be a key indicator of how serious these supposedly net zero-committed asset managers actually are about meeting their obligations.

Decarbonizing portfolios: analysis grid

We list below 3 key areas that should be analyzed when assessing the credibility of decarbonization targets and related implementation plans: ambition, alignment and implementation (3). The table provides an analysis grid (see details below the table) for recent announcements by AXA IM, BlackRock and State Street Global Advisors (SSGA). Vanguard’s interim target was not publicly available at the time of analysis.

For example, on BlackRock’s ambition:

BlackRock announced a very vague “expectation” that in 2030 the majority of its portfolio would be invested in companies with science-based targets. Setting the expectation that investee companies will adopt science based targets is far from enough — especially if there are no consequences implemented if they don’t. Furthermore, BlackRock’s goal is set for 2030 – but no intermediary milestones have been set to ensure that its investee companies are acting before 2030. Nothing requires them to actually cut emissions this decade, the crucial decade for climate action, let alone to halve them by 2030.

Asset manager Ambition Alignment Implementation
AXA IM (4) While the commitment is overall ambitious and includes targets for 2025 covering all eligible assets, Scope 3 emissions of the heavy emitters are not included. Furthermore, no absolute reduction target has been set. AXA IM plans to swiftly exit coal but its demands  for oil and gas companies are not yet science-based, clearly formalized and timebound (5). AXA IM recognizes its responsibility to achieve an overall 50% decrease in emissions by 2030; but the process by which it will achieve this must be clarified.
BlackRock BlackRock has not committed to cutting its financed emissions — it has only set an  “expectation” for its investees to adopt targets by 2030. It does not even expect them to take action before then. BlackRock has no policies to stop supporting coal, oil and gas expansion. Its requests to fossil fuel sector investees are not clearly formalized and timebound. BlackRock hasn’t committed to halving portfolio emissions by 2030 and does not recognize the need to restrict investments for the worst companies.
SSGA SSGA has set targets for when its assets will need to be “net-zero aligned” but gives no definition of what this means and has not set an absolute reduction target for its overall portfolio emissions. SSGA has no policies to stop supporting coal, oil and gas expansion. Its requests to fossil fuel sector investees are not clearly formalized and timebound. SSGA has a commitment to halve portfolio emissions by 2030 but only on a small subset of its portfolio. It does not recognize the need to restrict investments in the worst companies.

More details on our analysis grid for robust asset manager decarbonization plans:

AMBITION: Is the ambition of the targets sufficient?

  • The targets for 2030 cover 100% of eligible (6) AUM and are aligned with the need to cut financed emissions by 50% by 2030. Intermediary targets have also been set before 2030, and at least for 2025.
  • The targets cover the Scope 3 emissions of investees where these are material, and at a minimum for the fossil fuel, power and other emissions-intensive sectors.
  • The targets do not allow investees to meet their 2030 targets by using offsets.
  • The emission reduction targets are expressed in absolute terms. Where relevant, these can be complemented with intensity based indicators.
  • The scenarios referred to are no or limited overshoot and do not rely on massive amounts of negative emissions (like the Net-Zero Asset Owner Alliance-supported One Earth Climate Model).
  • The targets are clear commitments (and not just “expectations”).
  • Are all equity and bonds owned in companies from the highest emitting sectors (7) covered by the targets set for 2030?

ALIGNMENT: What’s the plan to technically align their AUM?

  • Is the asset manager changing its product offering to achieve net zero?
  • Is there a long–term plan to phase out fossil fuels coupled with an immediate commitment to stop investing in fossil fuel expanders? Is there an action plan for other emissions-intensive sectors?
  • Are the demands to investees and the process for ensuring these demands are met described (especially for heavy emitters)?

IMPLEMENTATION: What’s the implementation mechanism?

  • Recognition that some investees are unlikely to transition at the speed required and will need to be excluded from portfolios
  • A systematic escalation process is described and includes restricting investments for misaligned holdings including in the short term (by 2025)

The upcoming NZAM progress report will help assess which asset managers are truly decarbonizing their portfolios. The urgency is to act now to start cutting the emissions they finance: concrete actions must start with the fossil fuel sector, where climate science is clear what needs to be done. In short, asset managers must describe publicly (8) how they will stop supporting fossil fuel expansion and invest in a way compatible with an overall decrease in fossil fuel production.

Notes :

  1. Under the Glasgow Financial Alliance for Net Zero (GFANZ) umbrella
  2. Time for financial institutions to show urgency on halving emisions by 2030, Reclaim Finance
  3. This table is not intended to be a comprehensive assessment of the targets of AXA IM, BlackRock and SSGA. It provides an analysis grid based on 3 key elements. Other asset managers will be added once they release their decarbonization plans.
  4. Our assessment will be reviewed after more details are given by AXA IM on their new target.
  5. AXA IM has recently updated its policies and now provides some details on how it is engaging fossil fuel companies. While this is a first good step, the policies have loopholes and still allow investments in fossil fuel expansionists.
  6. Assets for which methodologies currently exist and as defined in the NZAOA Target Setting Protocol: listed equity, publicly traded corporate bonds, real estate, and infrastructure equity as well as infrastructure debt portfolios.
  7. As identified by the NZBA: agriculture; aluminum; cement; coal; commercial and residential real estate; iron and steel; oil and gas; power generation; and transport.
  8. In their engagement and exclusion policies as well as in their reporting to NZAM.