While industry pledges have been a useful indicator of intent, providing targets and regular progress reporting, recent changes and the ongoing review of the Net Zero Asset Managers Initiative (NZAMI) highlight the need for investors to scrutinise their managers’ credentials more closely and directly.
LCP has set out five key questions to help schemes understand their managers’ climate credentials and commitments:
1. Has your manager set a net zero target?
Investors should check for a clear statement of intent at both the fund level and firm wide. Evaluating carbon emissions is well established for equities and bonds but is less straightforward for alternative or illiquid assets. As a result, many managers exclude these from firm-level net zero commitments. LCP expects managers to address any data gaps to properly assess portfolio risks.
2. Has your manager set an interim target?
An interim goal, for example, by 2030, is just as important as a long-term target for 2050. Managers should be able to demonstrate progress towards their stated targets, whether those commitments are made at the manager or fund level.
3. Is the manager vocal on net zero?
It is important that managers engage meaningfully with investee companies to drive improved climate practices. They can also influence the wider market by engaging with policymakers, publishing research and collaborating with peers to amplify their impact.
4. Has the manager considered the broader impact of the climate transition?
Investors should assess whether a manager has considered how their net zero goals intersect with social issues. Decarbonisation should not negatively affect people’s livelihoods, health, or the environment, where practicable. Managers who are best in class at managing climate risks should be able to explain how they are addressing this.
Charlotte Dawkins, Associate Consultant at LCP, commented: “Industry pledges can be a helpful starting point, but they do not offer the full picture. To really understand a manager’s commitment to net zero, investors need to look beyond the labels and assess their practices, from setting targets to demonstrating progress to engaging with companies. It is only by asking the right questions that investors can gain real confidence in their managers’ climate credentials.”
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