Governments need to take further action on the climate crisis according to a new report from Morningstar amid a wave of net zero pledges from asset managers around the world.
Twelve major asset managers with net zero commitments surveyed by Morningstar said that governments must make stronger national commitments backed by transition plans.
“Globally, asset managers and the broader industry have already committed to addressing climate change by signing up to industry-led initiatives,” said Grant Kennaway, director of manager research at Morningstar.
“Governments have been lagging and now need to align their commitments with industry.”
In Morningstar’s report, asset managers identified which policies and regulation should be introduced by governments to support commitments to net zero, with a “clear consensus” among the respondents.
“Unambiguous government commitments to net zero, with appropriate timelines and interim targets … backed up by well-defined roadmaps outlining the specific policy choices and instruments that governments will pursue,” said one anonymous asset manager.
Policy suggestions made by the asset managers included providing certainty and clear market signals including carbon pricing, mandating climate risk disclosure, phasing out fossil fuels and incentivising climate positive investments.
Many of the suggestions align with those made as part of the 2021 Global Investor Statement to Governments on the Climate Crisis, which was signed by 733 institutional investors with more than $US52 trillion in assets under management ahead of the COP26 summit.
“Asset managers and their investors clearly want action on climate change. Governments also need to act. It’s the Australian way,” said Mr Kennaway.
Morningstar said that asset managers play a “critical role” in decarbonising the global economy with over $US100 trillion in assets under management globally, a third of which is managed by the top 10 firms.
Engagement and active ownership are key strategies to establishing a link between portfolio targets and tackling emissions according to Morningstar’s report, which noted that portfolio decarbonisation did not necessarily result in emissions reductions in the real economy.
The report also identified a lack of an industry standard for a net zero portfolio and metrics to link net zero plans with real-economy decarbonisation.
“While the momentum of the investment industry as evidenced by rapid sign-on to net zero initiatives under the UN-led Glasgow Finance Alliance for Net Zero and the ‘Race to Zero’ umbrella is an encouraging sign, the anticipated action plans will reveal the true degree of commitment and offer a basis for holding institutions accountable for their part in this global challenge,” Morningstar said.
“We anticipate wide variations in levels of commitment in asset managers’ net zero climate action plans – from the portion of assets in scope for 2030 targets, to the metrics used to track engagement progress and systemic impact.”
Morningstar said that “net-zero washing” remained a significant risk but noted that asset managers recognised the importance of methodologies and metrics that have industry-wide approval and are subject to public scrutiny.
