Defined Benefit
Defined Contribution
Insurance Assets
Nonprofit

What You Need to Know About the Net Zero Asset Managers Initiative

What You Need to Know About the Net Zero Asset Managers Initiative
clock
3 min 24 sec

In the first of a series of conversations on environmental, social, and governance (ESG) issues that Callan will host, Mark Wood of our Global Manager Research Group spoke with Wendy Cromwell of Wellington Management about the newly formed Net Zero Asset Managers Initiative. The two were featured in a recent “Research Cafe,” which are half-hour events sponsored by the Callan Institute to highlight topics of interest to the institutional investing industry.

Under the initiative, Ms. Cromwell explained, asset managers work with the companies they invest in to set targets to reach net zero emissions by 2050. The goal, she said, is to make sure investment managers are incorporating climate science and aligning portfolios with the warming objectives outlined in the Paris Agreement.

Ms. Cromwell, who is vice chair and director of sustainable investment at Wellington, said that 30 firms signed on to the Net Zero Initiative at launch, with approximately $9 trillion in assets under management (AUM). Signatories commit to work with asset owner clients on decarbonization goals, aiming to reach net zero emissions by 2050 or sooner across all AUM; set an interim target for the share of assets to be managed in line with the goal; and review the target at least every five years, aiming to increase the proportion of AUM covered until 100% of assets are included.

The asset manager signatories also agreed to review the internal target at least every five years, with a view to ratcheting up the proportion of AUM covered until 100% of assets are included.

Mr. Wood, a senior vice president at Callan, then asked, “How is this going to impact the day-to-day management of client assets?” Ms. Cromwell said her firm was focusing first on engaging with companies to adopt credible energy transition plans. These companies, she said, “would like us to buy their securities rather than sell them. We have a potential for good, constructive dialogue.”

Mr. Wood and Ms. Cromwell also discussed the growing number of organizations—and acronyms—focused on ESG issues broadly and climate change in particular (the “alphabet soup,” as Ms. Cromwell put it), highlighting the differences between the initiatives.

A critical organization, she said, was the Science-Based Targets initiative (SBTi), which evaluates how a corporation plans to navigate its path to net zero emissions. The number of companies working with SBTi has grown exponentially, she noted, because as one company sets out its targets, that also means its suppliers need to develop their own decarbonization goals.

Another important entity is the United Nation’s Principles for Responsible Investment (PRI), on whose board Ms. Cromwell sits (both Callan and Wellington are signatories to this initiative). The PRI, she said, “is meant to support the principles of responsible investment, which really means acknowledging the fact that beyond what is reflected on income statements and balance sheets, there are characteristics of firms that influence how they perform over the long term.”

Another U.N.-supported effort is the Sustainable Development Goals (SDGs). There are 17 SDGs that over 100 countries are seeking to achieve by 2030. “Those goals are very high-level and aspirational,” she said, but underlying them are some very specific targets. And the goals are becoming increasingly prevalent in the investing industry, with a growing number of asset managers announcing that their portfolios align with the SDGs and developing reporting to map portfolio holdings to achieving specific SDGs.

As they finished their conversation, Mr. Wood and Ms. Cromwell discussed the future of the asset management industry and how ESG issues will factor into the way firms operate and work with their clients. “The best investors are drawn to areas that are changing rapidly where there’s a lot of evolution,”’ said Ms. Cromwell. “And they seek new lenses to look through in order to get a differentiated perspective on the securities that they may invest in. Sustainable investment and climate research offer all of that in spades.”

She encouraged peer investment managers and institutional investors to focus on this area. “It’s something that could be really important and exciting for your investment portfolios.”

Posted by

Share
Share on facebook
Share on twitter
Share on linkedin
Related Posts
ESG

SEC Releases Final Climate Disclosure Rules

Kristin Bradbury
An explanation of the final SEC climate disclosure rules and what they mean for institutional investors.
ESG

The Heat Is On! Carbon-Footprinting Basics for Institutional Investors

Amit Bansal
Amit Bansal explains what carbon-footprinting means for institutional investors.
ESG

Callan Study Examines ESG Practices by Investment Managers

Kristin Bradbury
Kristin Bradbury summarizes our 2023 Asset Manager ESG Study.
ESG

S&P Global Moves Away from Numeric ESG Credit Indicators

Kristin Bradbury
Kristin Bradbury explains why S&P Global dropped its numeric credit indicators and what it means.
ESG

The ESG Rule Explained, Part 4: The DOL's Goals

ESG Consulting Group
Tom Shingler interviews a legal expert on the ESG rule issued by the Department of Labor.
ESG

The ESG Rule Explained, Part 3: Shareholder Rights

ESG Consulting Group
Tom Shingler interviews a legal expert on the ESG rule issued by the Department of Labor.
ESG

The ESG Rule Explained, Part 2: DC Plan Lineups

ESG Consulting Group
Tom Shingler interviews a legal expert on the ESG rule issued by the Department of Labor.
ESG

The ESG Rule Explained, Part 1: Fiduciary Principles

ESG Consulting Group
Tom Shingler interviews a legal expert on the ESG rule issued by the Department of Labor.
ESG

Biodiversity: A Relatively New Theme for ESG-focused Investors

Kristin Bradbury
Kristin Bradbury discusses the relatively new type of ESG thematic investing focused on biodiversity.
ESG

President Biden Vetoes Congressional Bill to Overturn ESG and Proxy Voting Rule

Thomas Shingler
On March 20, 2023, President Biden vetoed legislation that would have blocked the enactment of the U.S. Department of Labor (DOL) final rule released ...

Callan Family Office

You are now leaving Callan LLC’s website and going to Callan Family Office’s website. Callan Family Office is not affiliated with Callan LLC.  Callan LLC has licensed the Callan® trademark to Callan Family Office for use in providing investment advisory services to ultra-high net worth clients, family foundations, and endowments. Callan Family Office and Callan LLC are independent, unaffiliated investment advisory firms separately registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940.

Callan LLC is not responsible for the services and content on Callan Family Office’s website. Inclusion of this link does not constitute or imply an endorsement, sponsorship, or recommendation by Callan LLC of their website, or its contents, and Callan LLC is not responsible or liable for your use of it. When visiting their website, you are subject to Callan Family Office’s terms of use and privacy policies.