The Net Zero Asset Managers Initiative: Transparency and Accountability on Climate

Hannah Barr

Senior ESG Associate

Mary Jane McQuillen

Head of ESG, Portfolio Manager, Sustainability Leaders Strategy

In July 2021 ClearBridge Investments announced it had joined the industry-leading Net Zero Asset Managers Initiative (NZAM), an international group of asset managers committed to supporting the goal of achieving net-zero greenhouse gas emissions globally by 2050. We are proud to be part of a community of over 200 asset management peers, representing over $50 trillion, in this commitment.

The initiative seeks to reduce financed emissions — those associated with an asset manager’s investments — and so aligns with ClearBridge’s existing integration of sustainability-related investment risks such as climate change into our stock selection process. Achieving the goals of NZAM will also require us to build on our experience engaging companies on climate change issues, which we have undertaken for 30+ years in recognition of the urgency of accelerating global decarbonization efforts.

Asset managers in the initiative commit to working in partnership with asset owner clients on decarbonization goals to achieve net zero by 2050 across all assets under management, to set an interim target for the proportion of assets to be managed in alignment with net zero by 2050, and to review and ratchet up this target every five years until 100% of assets are included. More concretely, in order to meet these commitments, asset managers must:

• Set interim targets for 2030 for assets to be managed in line with the net-zero goal • Implement a stewardship and engagement strategy, with a clear escalation and voting policy, that is consistent with the initiative’s goal • Prioritize the achievement of real economy emissions reductions through engaging with portfolio companies to increase their carbon reduction ambitions (as opposed to simply divesting from carbon-intensive companies)

For ClearBridge, we plan to focus on increasing the alignment of portfolio companies to net-zero pathways by continuing to engage with our holdings in the spirit of long-term partnership. We have always engaged portfolio companies on climaterelated risks; in the past year we have already begun explicitly engaging on net-zero alignment. In our conversations we are encouraging companies to set ambitious carbon reduction goals that are “science-based,” meaning the target is in line with emissions reductions needed to collectively achieve the goals of the Paris Agreement.

A key aspect of NZAM is increased disclosure from asset managers, including the requirement to report annually on our climate action plans and our progress towards net zero. This plan will build on our existing climate-related work: climate risk analysis is already part of our ESG integration approach, and climate change is already a key engagement topic and a firm priority.

As proxy voting is one way ClearBridge uses its role as a large shareholder to drive positive change at portfolio companies, we will be aligning our proxy voting with our NZAM commitment, which will further inform and support our climate-related proxy voting.

NZAM is a new approach to driving decarbonization through the asset management industry, and it will require asset managers to significantly increase attention to climate issues. Bolstering transparency and accountability across the investment industry, NZAM is a welcome step forward.