Net-zero commitments should be a “very clear signal at some point” in the manager selection, appointment and monitoring process, according to the co-lead of the Net-Zero Asset Owner Alliance’s (NZAOA) engagement track, Jake Barnett.
Responsible Investor spoke to Barnett and his fellow co-lead Patrick Peura as the UN-convened NZAOA published a “call to action” to asset managers, outlining four overarching principles that will better align their stewardship with the long-term interests of clients.
Barnett is head of sustainable investment strategies at US faith investor Wespath Benefits and Investments. Peura is ESG engagement manager at German insurer Allianz SE.
The newly published principles include calls for managers to move towards “outcomes-focused corporate engagement” and implement “consistent, ambitious and merit-based voting policies”.
Fulfilling them, the document states, will improve managers’ ability “to win and maintain investment mandates of asset owners who recognise the risks climate change poses to their portfolios”.
Asked whether net-zero investors are using mandates enough to drive managers, Barnett said there is room for commitments to “become a more material factor in selection, appointment and monitoring processes at individual asset owners”. He stressed that NZAOA members set their manager selection processes independently, but should nevertheless use net-zero commitments as a clear signal of intent.
This “buy/sell signal” could rightly manifest in different ways at different asset owners, Barnett added, with some focusing on issues such as proxy voting and others on climate policy advocacy.
One of the “most impactful” ways this signal could be achieved is if capital allocators at funds are “emphasising and elevating it when they’re deciding who they want to partner with”, according to Barnett.
“Not only is it about asset owners taking this seriously broadly. It is also about getting a signal to the marketplace through those capital allocator roles.”
Peura told RI that the latest principles document from the NZAOA is a signal that the package of work from the engagement arm is now complete. He noted that the principles also set out what managers can expect to hear from asset owner members and from the NZAOA itself in the year ahead.
The engagement track published The Future of Investor Engagement in 2022 and followed up with several papers last year on engaging managers on proxy voting, policy advocacy and engagement more broadly.
According to Peura, there has been “really good pickup generally” from the market on the NZAOA’s proxy voting guidance.
He noted, however, that the uptake on policy engagement work has not been as strong. In May, RI surveyed 50 asset managers with net-zero commitments and found that the majority were reluctant to share details on climate lobbying work.
On a more positive note, Peura added that the engagement track has heard from asset managers that they plan to respond to its guidance on policy advocacy and inform their own programmes with it.
The four principles in the new NZAOA document are: focus on addressing the systemic risk of climate change; support an improved proxy voting landscape (for public equity); align lobbying activities with stated climate-related commitments; and make climate engagement more systematic and transparent.