Investors under fire over net zero performance

Asset managers are coming under more pressure from climate campaigners with new research warning that a key net zero initiative is failing to live up to its promises.

A new analysis conducted by researchers from University of Edinburgh and SDG Labs and commissioned by the Sunrise Project reveals shortcomings relating to public disclosures, proxy voting and bondholding behaviours for the 74 institution investors that are members of Net Zero Asset Owners Alliance’ (NZAOA) with a collective $10.6 trillion worth of assets under management.

The researchers added as an investor initiative aimed at accelerating progress on climate, members of the NZAOA are “reluctant” to report on concrete decarbonisation activity across their investments.

It added while disclosure is vital for progress towards net zero, only 26% of members disclose information relating to emissions they enable external to their corporation (‘Scope 3 emissions’). The majority of members are in a ‘middle’ range relating to disclosure completeness, and under-perform on issues such as setting measurable engagement targets and disclosing their climate voting records.

“This report reveals that even so-called climate leaders are failing to deny debt and close the backdoor route for fossil fuel investments. All investors, starting with members of the Net Zero Asset Owners Alliance, must immediately stop buying new bonds, as a priority, and divest from any company that is expanding fossil fuels,” said Alice Delemare Tangpuori, coordinator of the Toxic Bonds Campaign.

According to the research, proxy voting is a significant pathway of influence for NZAOA members.

“This analysis finds that for proposals that require alignment with the Paris Agreement, non-member investor groups – are statistically more likely to vote in favour of these than NZAOA members,” it added. “As previously assessed in 2021, membership within NZAOA does not seem to be resulting in better behaviour with regards to proxy voting in climate issues.”

The analysis also found that seven members of the NZAOA own more fossil fuel company bonds than Vanguard, an average market benchmark with no climate considerations. Most NZAOA members in the analysis had some exposure to fossil fuel bonds, 75% based on the BICS Beta fossil fuel companies. These actions enable new fossil fuel infrastructure, which is not aligned with a 1.5C pathway for climate action.

The report includes a series of recommendations including significant improvements to disclosures, deep changes to proxy voting practices that align members with net zero commitments and an immediate denial of new bonds for any fossil fuel company expanding high-emissions output and infrastructure.

“Members of the Net Zero Asset Owners Alliance are falling short of what is expected of them, as guided by the best and latest science of climate change. This collaborative research and report presents the opportunity to critically examine how the NZAOA is honouring its commitments”,said Lauren Chin, researcher at the University of Edinburgh.