There is an emerging consensus that, without strong policy signals and incentives, net zero efforts are likely to flounder. Recognising this, investors are becoming more candid about the limits of corporate engagement alone.
A report by the Net Zero Asset Owner Alliance’s (NZAOA) engagement track, published last year, warned that without the necessary policy shift there is a limit to how far up the “ever-steepening” decarbonisation cost curve investors can expect companies to move.
Investors, it said, also need to turn their attention to influencing policy.
Key to this will be asset managers.
This is acknowledged in the Net Zero Asset Managers initiative’s (NZAM) commitment to “ensure any relevant direct and indirect policy advocacy we undertake is supportive of achieving global net zero emissions by 2050 or sooner”.
To gauge progress on the issue, Responsible Investor surveyed 50 NZAM signatories on how they are integrating climate policy advocacy considerations into their own operations, oversight of trade associations and stewardship of investee companies.
The response was disappointing. More than half either did not reply to the six questions or declined to comment, despite being given a month to formulate their responses.
Six managers responded to some of the questions or sent a general statement – including one who provided a 575-word response that did not mention “policy advocacy” or “lobbying”.
A spokesperson for NZAM said it is “somewhat understandable” that not all investors surveyed would respond. They pointed to the “substantial reporting burdens and strong compliance frameworks in place around public disclosures of information”, as well as the “increased spotlight on disclosure regulation and greenwashing”.
RI survey questions
Does your company have a dedicated policy on the governance of its policy advocacy or the advocacy of its industry associations when it comes to climate and or sustainability?
Does your company annually or periodically review the alignment of its industry associations with its own position on climate change? If so, is that review publicly available?
Who is responsible at your company for climate and or sustainability related policy advocacy?
How is policy advocacy around climate and or sustainability integrated into your stewardship activities?
Does your company have a policy to align policy engagement with restricting global temperature rise to 1.5C above pre-industrial levels?
Has your company taken any specific steps (either internally within a group or publicly) to address an industry association’s policy engagement that is misaligned with your organisation’s climate commitments?
Of the 15 managers that responded to all the questions, only two – Dutch manager APG and UK-based Ninety One – explicitly said “yes” to having a dedicated policy regarding the governance of their own policy advocacy and that of trade associations.
Several others said they believed other guidelines or general policies on policy advocacy essentially covered this.
Around two-thirds indicated that they reviewed the alignment of trade associations with their own position on climate change to some extent. Several managers said they publish a list of trade bodies they are members of. None, however, said that they publish reviews.
Allianz Global Investors, Federated Hermes and Ninety One were among those that said they annually reviewed memberships of industry associations.
Dutch manager Robeco told RI that it had recently reviewed its membership of “financial sector industry associations” flagged by non-profit InfluenceMap has having a score of D or lower. The review – which is not public – “did not raise concerns”, said Lucian Peppelenbos, Robeco’s climate and biodiversity strategist.
A lack of concern about misalignment was shared by M&G Investments. Asked about reviewing trade bodies, the UK manager said it was not aware of any instances of misalignment.
Six of the asset managers that responded to the questions identified a particular person or job title as responsible for overseeing climate policy advocacy. Other respondents referred to a department or departments.
When it comes to integrating policy advocacy into stewardship efforts, one of the most detailed responses came from Fidelity International, which revealed that a company’s policy position is analysed as part of the manager’s “proprietary climate rating”.
The UK-based firm also said it had engaged with several companies on their climate advocacy positions, both individually and in collaboration with other investors, and “expects to expand this in 2023”.
Robeco told RI that it annually assesses the top 250 emitters in its portfolio and considers their policy advocacy when looking at the credibility of climate targets.
Only a few respondents said they have a specific policy to align their policy engagement with restricting global temperature rise to 1.5C. Those that do include Achmea Investment Management and Robeco.
Most explained how their existing efforts reflected such a position. For example, APG told RI that, in the absence of a formal commitment, “we do employ several activities in this area and engage with national governments on climate policy”.
The Dutch manager said this included pushing its government “to implement effective carbon pricing”.
Newton Investment Management said that it did not have any specific policy around policy engagement for 1.5C.
Therese Niklasson, Newton’s global head of sustainable investment, told RI: “Given the direction of travel for global warming we are less comfortable in keeping strict policy targets to 1.5 degrees. Our focus is aiming for this, but more realistically staying below two degrees.”
Asked whether they had taken any steps against industry associations due to misalignment, most managers said this has not been necessary.
Fidelity International, for instance, stated that misalignment often reflected “technical differences on how best to structure regulation or policy to achieve net zero rather than any differences in the aim of achieving net zero”.
Allianz reported that misalignment was not an issue due to its policy of screening trade bodies. The manager added, however, that it has passed on becoming members of some groups “due to possible or anticipated misalignment”.
Guidance for asset owners
To support asset owners, the NZAOA recently put out a discussion paper outlining four principles for use in assessing investment managers on climate policy engagement.
The lead authors of the paper are Patrick Peura, ESG engagement manager at German insurer Allianz, and Jake Barnett, head of sustainable investment strategy at Wespath Benefits and Investments.
Based on conversation with professionals at asset managers, Peura told RI that there seems to be “a bit of a disconnect” when it comes to pushing companies on their direct and indirect policy advocacy.
“It is quite problematic if you’re not willing or geared up to address such an important topic, one that is vital for us to meet our decarbonisation goals,” he said.
He added that he hoped the discussion paper would “spark” engagement on the issue, “because all of our goals are dependent on having a supportive regulatory and policy framework”.
Barnett and Peura agreed that one of the most important things an asset manager can do to be seen as a leader by asset owners committed to net zero is have the CEO and board make a commitment to align lobbying with 1.5C and push investee companies to do the same through stewardship.