By Pete Smith, Principal and Head of Sustainable Investment and Clare Keeffe, Associate and Senior Sustainable Investment Consultant from Barnett Waddingham
The climate collaboration story
Back in December 2020, as we geared up to celebrate the five-year anniversary of the Paris Agreement, a group of 30 asset managers became the founding signatories to NZAM. Its popularity grew quickly, and just two years later the group consisted of 291 signatories, representing over $66 trillion in assets.
The aim of NZAM was relatively simple: to bring together asset managers committed to supporting the goal of net zero greenhouse gas emissions by 2050 or sooner. Asset managers signing up to the initiative made several commitments, including progressing towards a net zero emissions reduction target. It was also recognised that engagement with underlying holdings would be needed to encourage such holdings to adopt credible net zero plans. As the industry’s understanding of adopting net zero investment plans evolved, the earlier commitments required of NZAM signatories were refined. That’s when the cracks started to show.
The exits
The first high profile exit was Vanguard (which manages over $10 trillion) back in December 2022. Vanguard stated: “Such industry initiatives can advance constructive dialogue, but sometimes they can also result in confusion about the views of individual investment firms.”
Vanguard felt this was the case for themselves, given their broad index fund range. There have been a handful of exits since, but in recent months there has been a notable increase, coming to a head at the start of 2025 with arguably the most high profile exit of all; BlackRock, the world’s largest asset manager with over $11.5 trillion in assets under management. In total there have now been 26 exits from the group.
So why is this happening? A number of exit statements, like Vanguard, note confusion over how commitments set out by the industry initiative will be implemented. Some commentators have noted that exits started to occur as the commitment to NZAM was refined. This was particularly evident when a greater focus was placed on active ownership by asset managers through engagement with underlying entities.
More recently however we have seen asset managers quietly admitting to concern regarding legislative and reputational risk and the potential threat of legal action, all of which have been cited as a distraction from investment management responsibilities. A majority of exits are from US based asset managers and much has been made in the press of the increase in exits prior to the new US president’s inauguration.
Following the flurry of exits at the start of this year, NZAM has suspended its activities and will review the initiative to ensure it remains fit for purpose in “the new global context”. It is worth noting that this emerging theme has not only been seen by the NZAM intitative. Other initiatives like Climate Action 100+ have seen similar exits, with an increase in exits at the start of this year.
Where does that leave the investor?
Most asset managers choosing to exit such initiatives note that the change in signatory status does not affect commitments made in relation to existing funds. We also see statements from asset managers confirming their continued commitment to helping investors navigate the risks that climate change can pose to returns.
As always though, the devil is in the detail. If an asset manager is quietly concerned about the threat of legal action due to their involvement in climate change initiatives, how long before that concern extends to their decision making in relation to assets managed? For that reason, at BW we will be monitoring both investment decision making and stewardship activity of any firm exiting such initiatives more closely in the short term. Our focus will be on any change (in pattern and rationale) of engagement activity with underlying holdings on climate change. Our strong working relationships with asset managers puts us in a good place to help clients concerned by such developments.
Time to take action?
Most of our clients have expressed their belief that climate change is financially material. In fact, our pension scheme clients typically include this in their Statement of Investment Principles and the new General Code of Practice expects pension schemes to document how they manage climate risks.
Climate change requires collective action and without such action, your investments are likely to be more exposed to material detriment. Collectively, UK pension schemes alone account for over £3 trillion in assets. You therefore have significant sway with the asset management community.
We therefore propose that clients concerned about the developments set out above should closely monitor investment decision making such as stewardship activity by their appointed asset managers and be ready to question any perceived changes in behaviour. We will continue to provide information on asset managers’ stewardship approaches, along with important updates like the above relating to appointed asset managers. Our manager sustainability ratings will also continue to reflect our view on how well or otherwise managers allow for sustainability matters in investment decision making and their stewardship activities.
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