Investment industry at ‘tipping point’ as $43tn in funds commit to net zero

The investment industry has reached a “tipping point”, with almost half the world’s assets under management now pledged to meet climate change goals in a shift that could have huge corporate implications.

Amundi, Franklin Templeton, Sumitomo Mitsui Trust Asset Management and HSBC Asset Management are among the latest big investors to sign up to the Net Zero Asset Managers initiative launched last December.

The latest signatories mean $43tn in assets, or almost half of the asset management sector globally in terms of total funds managed, are committed to a net zero emissions target. The industry oversees $100tn worth of assets, according to data from Willis Towers Watson.

“This marks a fundamental tipping point across the investment sector and a significant boost in efforts to tackle climate change,” said Stephanie Pfeifer, chief executive of the Institutional Investors Group on Climate Change, one of the investor networks that brought the asset managers together.

Fund managers’ focus on net zero goals will have ramifications as investors are forced to look for cleaner investments to meet their climate targets.

“We are convinced that the financial sector is a key catalyst for action in this race to net zero,” said Valérie Baudson, Amundi chief executive.

Catherine Howarth, chief executive of responsible investment charity group ShareAction, said it was “very welcome” that asset managers were recognising the need to cut emissions.

“But pledges are the easy part. They need to be backed by forceful engagement with the many high emitters in the corporate community that have been dragging their feet.”

A total of 128 investors are now part of the Net Zero Asset Managers initiative — up from just 30 with $9tn in assets in December. Signatories have pledged to set short-term emissions reductions targets across their investment portfolios for 2030. They will also work with clients who elect to reach net zero on their investments by 2050.

The investors are expected to report their exposure based on Task Force for Climate-related Financial Disclosures (TCFD) recommendations, a framework backed by former Bank of England governor Mark Carney.

In making their net zero calculations, they can include so-called carbon offsets that involve long-term carbon removal only where there are no technologically or financially viable alternatives to eliminate emissions.

But Lara Cuvelier, sustainable investment campaigner at Reclaim Finance, said many of the recent pledges from asset managers “seem more zero action than net zero emissions”.

She said the group’s recent research into 29 large asset managers found that while many were making long-term climate commitments, only two had robust policies around issues such as the phasing out of coal.

The focus on climate from asset managers coincides with growing demand from asset owners for investments that consider environmental, social and governance issues.

In a paper released on Friday, the UN-convened Net-Zero Asset Owner Alliance, which oversees $6.6tn in assets, also called for a radical reform in global carbon pricing as part of the push. It advocates for the introduction of a mechanism that creates a global carbon price floor and ceiling that rise over time.

A carbon pricing mechanism would unleash the “massive investments” required by all industries to reduce carbon emissions, it argued.

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