Asset managers must take action to decarbonise private market investments

NZAOA calling on investors to phase out support for fossil fuels


Natalie Kenway

Asset owners have issued a call to action to asset managers investing in private markets to integrate climate considerations when investing, regardless of asset class, as well as commit to net-zero targets and engagement action in this area.

Expectations have also been expanded to encourage investment managers to phase out support for fossil fuels, and disclose on progress in a standardised way in line with Task Force on Climate-related Financial Disclosures (TCFD) recommendations.

The UN-convened Net Zero Asset Owner Alliance (NZAOA), which consists of over 80 institutional investors with over $11trn in assets under management, is urging asset managers to play their part in the decarbonisation of private markets, which typically covers infrastructure, private equity, real estate and private debt.

In the paper Call to Action to Private Market Asset Managers published today, NZAOA calls on asset management groups to align investments with 1.5°C pathway and to address climate change across all their business activities.

See also – Less than a third of private companies set net-zero targets

It wants them to make a public commitment to net zero no later than 2025, offer funds that reflect that ambition, create decarbonisation targets for the private sectors they invest in and take asset-class specific action – for which it has provided guidance in the paper.

To ensure companies are acting on above, NZOAO said they should also report on progress in a standardised way:

  1. Disclose available data on financed GHG emissions (Scope 1 and 2) in the next annual reporting cycle
  2. Disclose the most relevant and material Scope 3 emissions for financial year 2024.
  3. Publish and implement a strategy for closing any potential data gaps, comprising a plan on how the asset manager intends to improve estimated data while pursuing measured data. 

Patrick Peura (pictured left), engagement track co-lead for NZAOA, and ESG engagement manager at Allianz SE, said: “Among private asset managers, there is diversity of approaches to climate change that reflects their varied organisations—this is positive. However, each of these approaches should have the interests of their asset owner clients at the core and should meet their clients’ minimum expectations. For NZAOA members, this is the only way to drive change in investee businesses, to secure sustainable and climate resilient portfolios, and to meet the Alliance’s Commitment.”

The paper also sets out further expectations for members to disclose in line with the TCFD recommendations, set regular educational and training on climate topics and has also been quite explicit on how private managers should be approaching fossil fuels:

a. Support the phase-out of fossil fuels as required by science-based 1.5°C scenarios.

b. Not provide new financing to infrastructure assets whose purpose or emissions cannot be aligned with the Alliance net-zero ambitions.

The paper said: “Climate change does not only create financial and investment risks, but also existential risks to asset owners’ core business (including providing secure retirements and comprehensive insurance offerings). Meanwhile, the transition to a net-zero economy poses significant opportunities. This is why the Alliance’s target-setting framework covers both portfolio decarbonisation and investment into climate solutions. All Alliance members are expected to deliver on their commitment by setting intermediate targets on a minimum of three out of four target areas.”

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