For investors to address systemic risks posed by climate change, they must focus on systematic solutions and use multiple levers of influence. This is because investor portfolio decarbonisation is tightly intertwined with the real-economy decarbonisation, both of which depend on enabling public policy and regulatory environments. In this context, policy advocacy presents a crucial and under-explored lever for investors to manage climate risk.
One of the most impactful ways for asset owners to enact policy advocacy is to engage with their most important strategic partners – their asset managers. In fact, asset owners with net-zero commitments will find that meeting their commitment will become increasingly challenging without such engagement.
In its latest discussion paper, “Aligning Climate Policy Engagement with Net-Zero Commitments”, the Net-Zero Asset Owner Alliance outlines best practices for assessing asset managers’ climate policy engagement. Importantly, the Alliance advises asset owners to integrate this assessment into their selection, appointment, and monitoring (SAM) processes of asset managers.
The best practices are organised into four themes, each featuring a key principle:
- Governance: Asset managers should publish a governance framework that describes their climate policy engagement strategy. They should also indicate what oversight mechanisms exist for their direct and indirect climate policy engagement and climate policy engagement-related stewardship practices.
- Alignment: Asset managers should align their direct and indirect climate policy engagement with their stated climate commitments.
- Stewardship practices: Asset managers should align their climate policy engagement-related stewardship practices with their stated climate commitments.
- Transparency: Asset managers should publish disclosures that provide sufficient information on alignment with the principles and practices outlined in this paper.
The above principles are conceptualised to support Alliance members and other asset owners in exercising their fiduciary duty by supporting policy action, through their asset owners, that mitigates climate change. This work is embedded in the Alliance’s foundational paper on “The Future of Investor Engagement”.
About the UN-convened Net-Zero Asset Owner Alliance
The Net-Zero Asset Owner Alliance is a member-led initiative of 85 institutional investors, with over US$11 trillion in assets under management, committed to transitioning their investment portfolios to net-zero greenhouse gas emissions by 2050. The Alliance members were the first in financial industry to set intermediate targets (aligned with the Paris Agreement schedule) and they report on their progress annually. The Alliance is convened by UNEP FI and PRI and is supported by WWF and Global Optimism.