Fund managers up against the clock – How realistic are ‘green’ commitments?

As global warming leaves behind fires, droughts and human casualties across much of the northern hemisphere, there are new signs that the financial commitments needed to protect the environment may not be enough to meet that goal, Bloomberg reports.

“I hope what we’re seeing will bring an acceleration of actions, but it won’t necessarily go that way,” Jean-Xavier Hecker, co-head of ESG research at JPMorgan, said in an interview.

Commitments to cut greenhouse gas emissions by the world’s largest asset managers are patchy at best, analysts at Morningstar Inc. and JPMorgan see significant differences in how firms such as Vanguard Group and State Street Corp. explain their zero emissions goals. But with the latest spate of extreme weather events underscoring the need for urgent action, there is not much time left for the financial industry to experiment with different carbon footprint calculation models.

“The more time we spend debating methodologies and data, the more we delay action,” said Hortense Bioy, global head of sustainability research at Morningstar Inc. which calls for greater standardization of zeroing methods. “The window of opportunity to take any meaningful climate action is closing fast.”

Some of the largest fund managers are still heavily invested in the fossil fuel industry. According to Bank of America analysts, European ESG investment funds have been increasing their holdings in energy companies such as Shell, Repso and Aker BP in recent months. While many asset managers have yet to align the majority of their assets with carbon neutrality targets, some large investment firms have adopted a variety of zero-carbon strategies, making it difficult to compare results and measure real-world impacts. people.

The Net Zero Asset Managers initiative, which represents businesses with $61 trillion in assets. dollars, allows its members to choose between three methods for calculating the percentage of their portfolios that align with a net zero target. The rationale is that managers need flexibility to adapt to different operating models.

Axa Investment Managers has committed 65% of its assets to this goal and has set a carbon intensity target – a measure of emissions relative to revenue – of 50% by 2030. BlackRock, the world’s largest fund manager, uses a different measure and says it expects “at least” 75% of corporate and government assets to be invested “in issuers with science-based objectives or equivalent” by the end of the decade, according to a NZAM report in May.

“BlackRock’s wording stands out because it’s not a pure commitment but more of an expectation” to meet the zero-emissions goal, said Hugo Dubourg, co-head of ESG research at JPMorgan. It is primarily based on BlackRock’s investment firms achieving their goals first.

NZAM members are also free to decide how much of their portfolio to commit to climate neutrality goals. This means they can exclude highly polluting industries.

“For this reason, participation in the initiative alone should not be interpreted as evidence of credible commitment,” Katie Stewart, ShareAction’s senior research manager, said in an email.

NZAM said in an email that its approach recognizes that the financial industry needs time to adjust. “These initial targets are simply the individual starting points of the asset managers,” the group said. NZAM’s plan is to offer more guidance on how to report, particularly in relation to private equity, derivatives, infrastructure assets and index-linked products.

On paper, BlackRock is well ahead of State Street and Vanguard, with 77% of its assets closely aligned to the zero-emissions goal. That compares with State Street’s 14% of assets and Vanguard’s 4%, according to NZAM data.

State Street’s goal of achieving zero by 2030 is based on its ability to halve the intensity of funded Scope 1 emissions (from direct operations) and Scope 2 emissions intensity (from purchased energy), while the reductions on the intensity of Scope 3 emissions (linked to the wider value chain) will be phased in later.

Meanwhile, BlackRock’s zero-emissions target for 2030 is based on how the companies it invests in are expected to perform, i.e. the share of those that have set themselves science-based targets.

In previous statements, it has stated that clients with investments worth 3.3 trillion. of dollars have already made zero emissions commitments, which will help BlackRock achieve its own goal.

Vanguard, for its part, limits the scope of its ambitions to actively managed funds. It aims to have at least half the market value of mutual funds come from companies aiming for zero emissions. Vanguard chose this approach to ensure that targets are responsible over the long term, according to a company spokesperson.