As global warming leaves a trail of wildfires, drought and loss of life across much of the northern hemisphere, there is new evidence that the financial commitments needed to protect the environment may not be adequate. to their goal.
“Hopefully what we’re seeing will speed up action, but that’s not necessarily the case,” said Jean-Xavier Heckerco-head of ESG research at JPMorgan Chase & Co., in an interview.
Commitments to cut greenhouse gas emissions by the world’s largest asset managers are inconsistent at best, with Morningstar Inc. and JPMorgan analysts seeing significant differences in how companies like vanguard group and State Street Corp. explain their net zero emissions goals. But with the latest bout of extreme weather highlighting the need for urgent action, the financial industry has little time to experiment with different models for calculating its carbon footprint.
“The more time we spend talking about methodologies and data, the more we delay action,” said Hortense BioyGlobal Head of Sustainability Research at Morningstar Inc., which calls for greater standardization of net-zero methods. “The window of opportunity to take meaningful climate action is closing fast.”
Some of the biggest fund managers remain heavily invested in the fossil fuel industry. According to analysts at Bank of America Corp., Europe-based ESG equity funds have increased their holdings in energy companies such as Shell Plc, Repsol SA and Aker BP ASA in recent months. While many asset managers have yet to align the bulk of their assets with carbon neutral goals, some large investment firms have adopted various net zero strategies, making it difficult to compare results and real-world impact measurement.
The Net Zero Asset Managers The initiative, which represents companies with $61 trillion in assets, allows members to choose between three methods to calculate the share of their portfolios aligned with a net zero goal. The idea is that managers need flexibility to adapt to different operating models.
The result is a patchwork of results. Axa Investment Managers has committed 65% of its assets to net zero and has set a carbon intensity target – a measure of emissions relative to revenue – of 50% by 2030. BlackRock Inc., the largest fund manager in the world, uses a different gauge and says it expects “at least” 75% of corporate and state assets to be invested “in issuers with scientific or equivalent objectives” by the end of the decade, according to an NZAM report in May.
“BlackRock’s formulation stands out because it is not a pure commitment but rather an expectation” to reach net zero, said Hugo Dubourg, co-head of ESG research at JPMorgan. It relies primarily on BlackRock beneficiary companies achieving their goals first.
NZAM members are also free to decide how much of their portfolios to commit to climate neutrality goals. This means that they can exclude highly polluting industries.
NZAM said in an email that its approach recognizes the financial sector needs time to adjust. “These initial goals are just the individual starting points for asset managers,” the group said. NZAM’s plan is to offer more guidance on how to report, particularly on 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 with its net zero goal. That compares to 14% of assets for State Street and 4% for Vanguard, according to NZAM data.
The difference between the three companies best known for their index funds is their net zero methodologies. “It doesn’t make intuitive sense to begin with,” Carlo Funk, head of ESG investment strategy at State Street, said in an interview.
State Street’s goal of achieving net zero by 2030 is based on its ability to halve funded Scope 1 emissions intensity (from direct operations) and Scope 2 emissions intensity (from direct operations). purchased energy), with Scope 3 emissions intensity reductions (related to the value chain) to be implemented later.
BlackRock’s net zero goal for 2030, meanwhile, is based on the expected performance of its beneficiary companies, namely the share that has set science-based targets itself. BlackRock declined to comment. In previous statements, he said clients with investments worth $3.3 trillion have already made net zero commitments, which will help BlackRock achieve its own net zero goal.
Vanguard, for its part, limits the scope of its net zero ambitions to actively managed funds. It aims for at least half of the market value of the funds to come from companies that aim for net zero. Vanguard chose this approach to ensure targets are accountable over the long term, according to a company spokesperson.
Bloomberg writer Anchalee Worrachate contributed to this report.