“Change rules of the game,” asks $10.4trn Net-Zero Asset Owner Alliance in new paper on investor action

7 April 2022

The UN-Convened Net-Zero Asset Owner Alliance releases a high-level paper outlining a forward-looking, systematic stewardship approach for investors that seeks to mitigate the existential risk of climate change. This stewardship approach focuses on how investors can leverage multiple tools of engagement to support changes to economic realities that align with a transition to a 1.5C future.

The discussion paper, The Future of Investor Engagement, draws attention to key engagement approaches which, when deployed in complement with corporate engagement, can catalyse systemic decarbonisation of the real economy. The Net-Zero Asset Owner Alliance, which holds more than $10.4 trillion combined capital and whose 71 members span five continents, proposes three key areas where climate-ambitious investors must expand and increase their stewardship and engagement efforts:

  • Sector/value chain engagement, whereby investors can leverage insights from corporate engagement to support solutions across industries and sectors, and identify systemic or regulatory hurdles obstructing decarbonisation, particularly in hard-to-abate sectors;
  • Policy engagement directly follows, where investors lend their voice, alongside other stakeholders, in calling on policymakers to address the economic, technological, and regulatory hurdles preventing decarbonisation at sufficient speed;
  • Asset manager engagement complements all other engagement streams, ensuring that asset managers’ activities in stewardship align with asset owners’ long-term interest in a transition to net-zero;

Günther Thallinger, Allianz SE Board Member and UN-convened Net-Zero Asset Owner Alliance Chair: “It’s high time to change the rules of the game. As asset owners, we need to look towards ways we can undertake impactful engagement to directly influence asset managers, stakeholders across entire sectors, and policymakers. Regardless of how ambitious investor commitments are, companies still operate within policy and economic frameworks. Systemic change to these frameworks is needed urgently to align with a 1.5C future, and this new paper presents the case for re-writing the rules of the game to do so.”

Sector and value chain engagement

Asset owners can play a unique role as conveners of sectoral and value-chain dialogues. The paper pushes for further development of engagement streams that bring together multiple stakeholders, including peer companies, suppliers, NGOs, regulators, and customers. Wide stakeholder dialogues help identify both collaborative opportunities to reduce emissions across value chains and regulatory and policy hurdles to achieving net-zero alignment. This type of engagement drives a level of accountability that is not always possible when engaging a single company, and it also addresses the scalability issues of corporate engagement by facilitating collaborative outreach and action from investors.

Policy engagement

Asset owners can use their direct and indirect influence to call on policymakers, including civil society experts and stakeholders, to develop and implement 1.5C aligned climate policy. This can be achieved by pushing for regulation that requires company disclosure of material climate information, incorporating climate lobbying expectations into existing engagement dialogues with companies, and supporting industrial policy that effectively addresses climate change generally.

Through these engagements, institutional investors’ long-term systemic interest in the health of the global economy can help counterbalance the sometimes-narrower interests of individual companies or trade associations.

Asset manager engagement

The paper’s final focus is on elevating asset owner’s engagement of asset managers. Asset managers work on behalf of their asset owner clients to choose portfolio companies, conduct corporate engagements, and cast votes through their stewardship programs. Additionally, they are important influencers of the business community through their own policy engagement and public discourse. The paper urges asset managers to re-examine their fiduciary duties and increase the ambition of their stewardship activities to reflect the existential risk of climate change to asset owners’ fundamental businesses.

In addition, the paper calls on asset owners to integrate the evaluation of asset managers’ systematic stewardship efforts related to climate into their ongoing selection, appointment, and monitoring (SAM) processes. Ultimately, asset owners should seek to increase asset manager ambition and accountability, pushing for stewardship activities that complement the direct and idiosyncratic lever of corporate engagement.

Systematic stewardship by investors is part of a series of critical steps being taken by the Net-Zero Asset Owner Alliance, reflecting its commitment to supporting a transition to a 1.5C future. All actions taken must drive towards a financial system that is resilient to systemic risk, while also better serving the collective interest of asset owners, the business community, and humanity in general.

 

About the UN-convened Net-Zero Asset Owner Alliance

The 71 members of the UN-convened Net-Zero Asset Owner Alliance have committed i) to transitioning their investment portfolios to net-zero GHG emissions by 2050 consistent with a maximum temperature rise of 1.5°C above pre-industrial levels; ii) to establishing intermediate targets every five years; and iii) to regularly reporting on progress. The Alliance is convened by UNEP’s Finance Initiative and the Principles for Responsible Investment (PRI). The Alliance is supported by WWF and Global Optimism, an initiative led by Christiana Figueres, former Executive Secretary of the United Nations Framework Convention on Climate Change (UNFCCC).

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