Fund selectors have told PA Future they are engaging with asset managers that exited the Net Zero Asset Managers (NZAM) initiative before it suspended activities last month and warned that any climate backpedalling could lead to divestment.
NZAM announced it has suspended the initiative and launched a review to ensure it “remains fit for purpose in the new global context” after a number of large US asset managers said it would be leaving. BlackRock left in January, while Vanguard was the first to depart in 2022. Over the years, State Street, Goldman Sachs and JP Morgan Chase were among those to exit, while in the UK, Baillie Gifford withdrew in November 2024 citing its membership “had become contested”.
The NZAM initiative said the review will consult existing members on a viable path forward, and similarly, the Glasgow Financial Alliance for Net Zero (GFANZ), set up at COP26, also announced a restructuring in January, dropping the requirement to align with the Paris Agreement in order to participate.
Rush to join as NZAM formed
At the time of NZAM’s formation in December 2020, the Institutional Investors Group on Climate Change said it was set up to create an international group of asset managers committed to supporting the goal of net zero greenhouse gas emissions.
Groups rushed to join, committing to supporting net zero greenhouse gas emissions by 2050 and annual reporting. They were assessed on their progress towards climate targets and were warned signatories may be delisted from the initiative if they didn’t declare the proportion of assets to be managed in line with net zero within one year of signing the commitment. In 2021, some $4.2trn was committed to 2050 net-zero goals.
Fast forward to 2025, and greenwashing and performance concerns have led to a dive in appetite for sustainable investment funds. But the election of President Donald Trump has exacerbated this, and firms have moved away from public climate commitments. In his second term, Trump has withdrawn the US from the Paris Agreement again and made fossil fuel development a clear focus.
There are also increasing legal and political challenges; State Street, BlackRock and Vanguard – which were members of NZAM – were sued by Texas and 10 other Republican-led states for violating antitrust laws because of climate activism that resulted in a reduction in coal production and increased energy prices, as explained in the Morningstar analysis of global banks leaving the equivalent initiative for the sector, the Net Zero Banking Alliance (Major Global Banks are Leaving the Net-Zero Banking Alliance: Does it Matter?)
“Similarly, with President Trump’s re-election, the large US banks came under pressure from Republican policymakers, who allege that the membership of such coalitions could breach anti-trust rules, especially if it limits financing for fossil fuel companies,” the report continued.
‘Sense of disappointment’
Fund selectors said they are engaging with groups that have left NZAM about their climate commitments, saying membership of NZAM was something they valued, but not a reason for inclusion in portfolios.
“NZAM provides an important accountability mechanism for investors,” Sophie Lawrence, stewardship and engagement lead for Greenbank, told PA Future.
“NZAM-aligned net zero commitments provide a clear and measurable target for investors to assess the alignment of their asset managers’ portfolios with climate goals, and the transparency allows investors to track their efforts and hold them accountable for achieving their commitments.
“In the short term, we may see a decline in how vocal companies are willing to be regarding their social and environmental commitments, in response to the growing ESG backlash in the US.”
Jake Moeller, associate director of responsible investing at Square Mile, said while there is a sense of disappointment the asset managers abandoned NZAM, they have his sympathy as they attempt to juggle lots of different client interests.
“I understand the politics that’s going on in the US. I get it. It’s difficult for fund groups to juggle client litigation with other clients’ expectations around climate – it’s a very real conflict these groups face, and I have some sympathy for it.
“There are fund groups that don’t hide and recognise climate change is something that needs to be considered in fiduciary duty, and are prepared to be committed to it. So, all things being equal, membership of NZAM did matter.
“However, in and of itself, it has never been grounds for inclusion in a portfolio.”
Demonstrating climate action or face divestment
He added the Square Mile team have looked beyond membership and for evidence of action within these collaborative initiatives as “they can sign up to these things but not always be doing much with them”.
“We’ve always looked not just for membership, but for leadership within that organisation. For example, lots of groups are members of the UN Principles for Responsible Investment (PRI). That alone used to mean something but now we look for more, not just membership of the PRI but active involvement in some of the subcommittees and activity within membership.”
See also: ‘It’s a good time for NZAM to review itself’
This is a stance shared by Hargreaves Lansdown as Dominic Rowles, lead ESG analyst for the firm, said: ““NZAM membership has been used by many organisations to demonstrate their commitment to climate action. However, HL’s approach to integrating climate into our investment process goes beyond reviewing the memberships that a fund group holds. We expect all fund groups to publicly pledge to net zero by 2050 or earlier (covering at least Scope 1 and 2 emissions) and to be working towards creating a robust transition plan to support this pledge.
“We also like to see our appointed fund managers take steps to reduce their Scope 3 financed emissions and will work with managers who are yet to make commitments in this area to understand their challenges and provide support.”
Greenbank’s Lawrence also said the firm has “always placed more credence on the performance and actions of a company rather than the volume of its reporting and disclosures” and this is becoming all the more important in the current environment.
Nonetheless, as a result of the NZAM suspension and exodus of fund managers, fund selectors are seeking reassurance from these firms that they remain committed.
“We may need to undertake more intensive engagement with US-based companies to understand their ongoing commitment to net zero, both directly and via the climate-related collaborative engagement initiatives we are part of,” Lawrence noted.
Further, Rowles said HL has not ruled out pulling assets from groups that do not meet their expectations: “We have engaged with several of the US asset managers that withdrew from NZAM and were comforted to find that despite their departures, their net-zero commitments largely remain in place. We’re continuing to monitor the situation closely, and any climate backpedalling will trigger our engagement process, potentially leading to divestment.”
‘Blip in our history’
While groups have generally been restating their individual commitments to net zero, there appears to be some concern around the transparency of progress to meet their goals, and fund selectors have also indicated there is comfort in a crowd. Morningstar’s report said: “A coordinated effort is a far superior approach and thus the exodus will likely slow climate transition progress and increase climate-related risks over time to financial institutions overall and globally.”
Hortense Bioy, global director of sustainability research at Morningstar, added asset managers will have a tough task convincing investors they are “able and willing to develop strategies that meet client demand” around climate goals.
“Asset managers are under pressure to cut costs, etc. It is very possible they are not going to be as well-equipped as they used to be.
“This is a blip in our history and there will be questions around authenticity,” she added.
As demonstrated by the recent extreme weather events, including the devastating wildfires in Los Angeles, climate change impact is not going away and transition risks for businesses will continue to emerge.
The Morningstar report added: “[Transition risks] could intensify in the long run if future government policies, legislation and regulation reverse, and ultimately require more dramatic, more expensive efforts. Technological advancements and changes in market and customer sentiment towards a low-GHG economy could exacerbate these risks.”
As the fund selectors explained to PA Future, membership in NZAM is not a reason for investment or divestment. However, asset managers backpedalling on their climate commitments, engaging in greenhushing or otherwise being vague around their actions should expect increased investor pressure around aligning business goals with climate needs. Ultimately, transparency is key.
