Asset owners set ‘minimum expectations’ for private market firms on decarbonisation

The Net-Zero Asset Owner Alliance (NZAOA) has detailed its expectations on climate for private markets managers in a 19-page “call to action”.

It comes as private market asset managers appear to be failing to keep pace with decarbonisation efforts, according to members of the Alliance.

The Alliance is made up of 82 asset owners who have committed to transitioning their portfolios to net-zero greenhouse gas emissions by 2050.

The document sets out “minimum expectations” as well as key recommendations for all private asset managers in aligning with net-zero objectives. It has also provided specific actions for each asset class, ranging from governance structure and disclosure on GHG emissions, to financing the transition.

Meeting these recommendations is a way for private asset managers to align on long-term net-zero ambitions, “especially for those that have yet to formally implement a decarbonisation strategy”, Patrick Peura, UN Asset Owner Alliance Engagement co-lead and ESG engagement manager at Allianz, tells New Private Markets.

The document also highlights the work of ongoing initiatives such as the Net Zero Asset Managers initiative (NZAMi), the initiative Climate International (iCI) and the ESG Data Convergence project, and encourages asset managers to support them.

The protocol was created using feedback gathered from Alliance members when asked what challenges they are facing in reaching portfolio-wide decarbonisation goals, Peura says. “We sat down with about 15 of our members internally and talked about what gaps they are seeing with the asset mangers they work with. We identified within the private asset classes that many of our members were having a more difficult time getting what we needed in order to support our decarbonisation commitments… in some cases, our members felt this asset class hasn’t kept pace with the level of ambition that we need from our asset managers managing our money.”

The biggest gap in emissions data comes from the private market, Peura points out. “Sometimes there are handfuls of companies that asset managers have in their funds that simply need to report on their energy consumption… it should be solvable if the ambition and conviction is there, which starts at asset-owner level and is reinforced by our call to action.”

Part of the problem, explains Peura, is that the “fragmented and heterogeneous” nature of the private asset classes has made it “difficult to convince managers in the private sphere – especially the smaller ones – that there is a consistent concern from asset owner clients on climate change and decarbonisation”.

This comes as “many of our members kept hearing that they were the only ones asking for requests on data or climate objectives”, Peura says. “With this document, we want to make it clear that it is something that our members need, and what all asset owners should be asking about.”

This is where the Alliance feels its “call to action” can be most impactful. “It’s about driving those conversations between asset owners and their asset managers. Having a document like this, that clearly lays out what we need to meet our goals, which can be shared with asset managers, is one of the most useful mechanisms to support the general focus on net-zero across the asset management and business community.”

Given the clear signals on the alliance’s needs, asset managers that aren’t providing a plan to reach net zero will find that it is increasingly difficult to win mandates, Peura adds.