Fund managers face ‘rapidly closing’ window to fix carbon emissions maths

COPENHAGEN (BLOOMBERG) – As global warming leaves a trail of wildfires, drought and human loss across much of the northern hemisphere, there is fresh evidence that the financial pledges needed to protect the environment may not be fit for purpose.

“I hope that what we’re seeing will accelerate action, but it’s not necessarily the case,” said Mr Jean-Xavier Hecker, co-head of ESG research at JPMorgan Chase, in an interview.

Commitments to slash greenhouse gas emissions by the world’s biggest asset managers are at best inconsistent, with analysts at Morningstar and JPMorgan seeing significant differences in how firms such as Vanguard Group and State Street explain their net-zero emissions goals.

But with the latest bout of extreme weather underscoring the need for urgent action, there is little time for the finance industry to experiment with different models for calculating their carbon footprint.

“The longer we spend talking about methodologies and data, the longer we delay action,” said Ms Hortense Bioy, global head of sustainability research at Morningstar, which is calling for greater standardisation of net-zero methods.

“The window of opportunity to take any meaningful climate action is rapidly closing.”

Some of the biggest fund managers remain heavily invested in the fossil-fuel industry.

According to analysts at Bank of America, European-based ESG equity funds have been increasing their holdings of energy companies such as Shell, Repsol and Aker BP in recent months.

While many asset managers have yet to align the bulk of their assets with carbon-neutrality goals, some large investment firms have adopted varied net-zero strategies, making it hard to compare results and measure real-world impact.

The Net Zero Asset Managers (NZAM) initiative, which represents firms with US$61 trillion (S$84.6 trillion) of assets, allows members to choose between three methods for calculating how much of their portfolios are aligned with a net-zero goal.

The thinking is that managers need flexibility to accommodate different operating models.

The result is a patchwork of outcomes.

Axa Investment Managers has committed 65 per cent of its assets to net zero and set a carbon intensity target – a measure of emissions relative to revenue-of 50 per cent by 2030.

BlackRock, the world’s biggest money manager, uses a different gauge and says it expects “at least” 75 per cent of corporate and sovereign assets to be invested “in issuers with science-based targets or equivalent” by the end of the decade, according to an NZAM report in May.

“BlackRock’s formulation stands out because it’s not a pure commitment but more of an expectation” for achieving net zero, said Mr Hugo Dubourg, co-head of ESG research at JPMorgan.