Asset owners revise manager relations after NZAM exits
Behind the wall of silence, asset owners are busy working out what the exits mean for them
With Blackrock, Vanguard, Northern Trust, and various other asset managers having exited the Net Zero Asset Managers initiative (NZAM), which led to the suspension of the network's activities, asset owners are scrambling to evaluate their relationships with these managers.
Political and legal pressure, especially the anti-ESG movement in the US and Donald Trump’s return to the White House, are widely seen as the main cause for the departures.
The announcement of BlackRock's exit from the climate coalition coincided with the asset management giant being sued by 10 Republican states over alleged breaches on anti-trust regulations.
NZAM's response to BlackRock's exit was drastic: not only have the alliance's activities been suspended, references to asset manager members have been removed from the site while a review into the network's remit is ongoing.
Yet despite this dramatic move, the response from asset owners has so far been muted, with few seeming to wish to put strain on their asset manager partnerships by making bold public statements. About a dozen asset owners approached by Net Zero Investor declined to comment on the matter.
Some, however, have made tacit acknowledgements that the NZAM exits will make them re-evaluate their manager relationships going forward.
“All I can say is that AP3 is in regular dialogue with our service providers,” says Fredric Nystrom, head of sustainability and governance at Swedish pension fund AP3. “BlackRock’s decision to leave NZAM will not affect our relationship immediately. However, as we regularly review our relationships with them and other service providers, this will be one of many factors that we will consider going forward.”
Diandra Soobiah, director of Responsible Investment for the £48bn master trust Nest, stresses the importance of managing climate change risk and its impacts on investments and the broader financial markets.
“This is why we regularly engage with all our fund managers to ensure their engagement with companies on climate-related risk and opportunities is continuing and they are tracking their progress towards a net zero world,” she says. “While we understand the pressures asset managers are facing, we remain committed to delivering on our climate change policy and will continue to closely monitor the situation.”
US pension fund CalSTRS, which manages $349.7bn on behalf of educators in California has approximately $4.3bn in exposures to BlackRock across various funds, including its Real Estate, Inflation Sensitive, Fixed Income and Collaborative Strategies portfolios.
When asked to comment on the exits, a CalSTRS spokesperson stressed the pension fund’s “fiduciary duty to protect the best interests” of its members, which is why it “remains committed” to its pledge to achieve net zero by 2050 or sooner. However, they declined to expand on the specific implications of the NZAM exits for their net zero journey.
Quo vadis, NZAM?
There is, however, also a different sentiment in the market, with some asset owners questioning on background whether it is time for the alliance to review its priorities.
The coalition, which launched five years ago, has so far focussed its efforts on target disclosures, however, it does not include firm commitments to adjust investment strategies in a specific way, only loosely pledging to "increase ambitions over time". Against the backdrop of rising global carbon emissions and a world that now is off track to meet the 1.5% target set in the Paris Agreement, there is now growing concern that membership of the alliance had not always translated into action on climate.
Instead, some asset owners feel that membership of the alliance has become a "tick box exercise" which was no longer sufficient to gauge the true level of climate commitments among mangers.
Other's however, believe that it is perfectly possible for managers such as BlackRock to remain committed to climate, despite having left the alliance. Speaking at Net Zero Investor's DC Forum, Samantha Chew, stewardship lead at Aegon, a major UK client of BlackRock, argues that the manager has made significant progress on climate, despite having left the alliance.
Aegon's stewardship approach is based on expression of which, whereby the team communicates its voting preferences with the manager ahead of the AGM and subsequently tracks voting patterns. "I am really pleased that after two years of expression of wish, BlackRock has recently released new decarbonisation guidelines which means that we now have Paris-focused stewardship by BlackRock, the world's largest asset manager on Aegon's default fund commitments, this is potentially game changing" she expressed.
"Alliances can be a useful forum, especially for asset owners, we are more under-resourced than managers so it is a a really useful forum to tap into best practice and amplify our impact, but we probably need a stronger focus on these alliances undertaking the right activities in the most effective way. We hope that the strategic review and the period of reflection will move us to that" she argued.
NZAM initiative suspends activities following BlackRock's exit
