Asset managers are in a unique position to help drive the transition to net-zero carbon emissions.
The Net Zero Asset Managers Initiative (NZAM), which now represents $57.5 trillion* in assets under management, is rapidly becoming a potent force for driving market-wide solutions to climate change.
Every day counts
In 2015, the world set itself a target to keep temperature increases below 2°C, and ideally 1.5°C (the Paris Climate Agreement goals). This was in response to overwhelming scientific evidence that the climate is warming at an unprecedented rate, with devastating implications for millions of people.
Since then, it has become clear that our planet is warming faster than previously thought. We must reduce net carbon emissions to zero by 2050 if we wish to keep temperature increases to 1.5°C, and by 2070 for a 2°C cap.
What is required is an unprecedented economic and social transformation – the entire world must be weaned off carbon within 30 years.
- Phasing out fossil fuel dependence and other carbon-emitting activities across all sectors of the economy.
- Stopping destruction of natural habitats that act as critical carbon sinks and are home to vital life-supporting biodiversity.
The challenge is enormous, and every day counts.
$57 trillion* working for net zero
NZAM has now attracted 236 signatories*, asset management companies that collectively are responsible for investments worth $57 trillion*. This represents a significant development in marshalling and mobilising capital to combat climate change.
As stewards of our clients’ assets, we and other asset managers are in a unique position to promote positive change by deciding where to deploy capital, and in turn influence how companies deploy their own capital.
Specifically, NZAM signatories have committed to:
- Work in partnership with their clients on decarbonisation goals, consistent with an ambition to reach net-zero emissions by 2050 or sooner across all assets under management (AUM).
- Set a target for the proportion of assets to be managed in line with the attainment of net-zero emissions by 2050 or sooner. (Sarasin & Partners’ own target is to ensure that by 2025 all investments we hold on behalf of clients on a fully discretionary basis will be net-zero aligned, or subject to efforts to drive 1.5°C-alignment.)
Beneath these commitments sit ten more detailed commitments, which are outlined in our publication Making Net Zero A Reality.
NZAM is a natural step for us
We strongly believe that playing our part in promoting a stable planet is aligned with our clients’ interests.
Our commitment to acting on climate change is not new. In 2017, Sarasin & Partners launched a Climate Active strategy to provide UK charity clients with an investment solution designed to manage investment risks associated with climate change while also promoting action by companies and policy-makers on climate change.
Building on this experience and our heightened conviction that more needed to be done, we published our firm-wide Climate Pledge in 2019. This committed us to aligning our investment and stewardship activities with achieving the Paris Agreement goal of keeping temperature increases well below 2°C.
Signing up to the Net Zero Asset Managers’ Commitment (NZAM) in December 2020 as a founding signatory was therefore a natural step for us. Climate change is already a core element our investment approach, being one of the five long-term global themes that drives how we allocate capital and a key part of our bottom-up risk analysis.
Engaging for positive change
Investors have important rights, but also have responsibilities to promote sustainable business practices through thoughtful voting and engagement with companies. Where concerns arise, investors can – and in our view should – make public calls for change and build coalitions with like-minded stakeholders through initiatives such as NZAM.
Our stewardship approach is described in detail in our 2020 UK Stewardship Code report. At its heart is a belief that responsible and sustainable companies are more likely to deliver enduring value for our clients. Our approach is holistic, ensuring that we act at an investment, engagement and policy level.
We do not believe that a simplistic divestment approach is in keeping with the Paris goals, as investors have a vital role to play in pressing carbon-intensive companies to change course. In the end, we will only successfully limit global warming if everyone acts. Robust engagement can deliver greater impacts – and thus a better outcome – for our planet, but it needs to be undertaken with purpose and tenacity and also be transparent.
For example, we already – and will continue to – vote against company directors where we see inadequate action to align strategies and operations with a 1.5°C pathway. We will vote against auditors who fail to call out unsustainable company accounts, thereby facilitating continued investment into harmful carbon-intensive activities. We will publicly set out our reasons for doing so, putting the spotlight on poor corporate performers.
We are embedding our net-zero goal in how we invest, our engagements with companies, how we vote and our focus on policy outreach to press for broader market-wide change to support a 2050 net-zero target.
The greatest risk is inaction
Climate change is not going away, and the greatest risk today is one of inaction. We do not have the luxury of time. It is vital that we act today.
In the end, what matters is not whether an individual portfolio is carbon neutral; something that can be easily achieved by selling securities in carbon-intensive companies. What matters is that the world achieves net-zero carbon emissions by changing the way we produce and consume goods and services. We must change attitudes and behaviours, and also innovate to find carbon-free alternatives in all aspects of our lives. We must confront inaction. This will not be easy. This reality underpins our approach to net-zero alignment.
Our NZAM Action Plan is by no means a final blueprint: we must be flexible in responding to new scientific insights and better methodologies. It is, however, a clear and public affirmation that we and our fellow signatories are serious about climate change and, above all, determined to play our part to help protect our planet for generations to come.
We intend to do this by confronting inaction, not looking the other way.
* Figures as at 11 February 2022.
If you are a private investor you should not rely on this document but should contact your professional adviser.
This document has been issued by Sarasin & Partners LLP which is a limited liability partnership registered in England and Wales with registered number OC329859 and is authorised and regulated by the UK Financial Conduct Authority. It has been prepared solely for information purposes and is not a solicitation, or an offer to buy or sell any security.
Please note that the prices of shares and the income from them can fall as well as rise and you may not get back the amount originally invested. This can be as a result of market movements and also of variations in the exchange rates between currencies. Past performance is not a guide to future returns and may not be repeated.
The information on which the document is based has been obtained from sources that we believe to be reliable, and in good faith, but we have not independently verified such information and we make no representation or warranty, express or implied, as to their accuracy. All expressions of opinion are subject to change without notice. All details in this article are provided for information purposes only and should not be misinterpreted as investment advice or taxation advice.
Where the data in this article comes partially from third party sources the accuracy, completeness or correctness of the information contained in this publication is not guaranteed, and third-party data is provided without any warranties of any kind. Sarasin & Partners LLP shall have no liability in connection with third-party data.
Neither Sarasin & Partners LLP nor any other member of the Bank J. Safra Sarasin group accepts any liability or responsibility whatsoever for any consequential loss of any kind arising out of the use of this document or any part of its contents. The use of this document should not be regarded as a substitute for the exercise by the recipient of his or her own judgment. Sarasin & Partners LLP and/or any person connected with it may act upon or make use of the material referred to herein and/or any of the information upon which it is based, prior to publication of this document.
© 2022 Sarasin & Partners LLP – all rights reserved. This article can only be distributed or reproduced with permission from Sarasin & Partners LLP. Please contact [email protected]