The ‘Net Zero Asset Managers Initiative’ (NZAMI) has brought together asset managers with combined holdings worth $57tn under a framework for achieving net zero by 2050. En route to 2050, members are required to adopt interim decarbonization targets to set them on pace with net zero, beginning with a 2030 target. On November 1st, the opening day of COP26 in Glasgow, the initiative released a report announcing the 2030 targets of 43 of its members.

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In this briefing, we break down how these targets are both unambitious and gameable. At best, they put asset managers on track to achieve 40% of the total emissions reductions necessary to align themselves with a 1.5C world by 2030. At worst, the initiative allows most asset managers to achieve their 2030 targets by cutting just a few percent of their emissions, while focusing on their portfolio’s exposure to emissions, instead of their impact on emissions in the real world. We make four key arguments:

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• NZAMI allows members to choose the percentage of their AUM covered by their 2030 targets. In their progress report, the initiative’s members set targets covering in between 100% of their AUM and just 0.55%. We combine the percentage of AUM covered by asset managers’ targets, with the percentage reduction in emissions they are pledging to achieve across those assets, to reveal that the average effective decarbonization target of the initiative is just 20%.

• This, however, assumes that the AUM covered by these targets is representative of the emissions profile of their entire AUM. We have no guarantee of that. Asset managers’ portfolio emissions are not evenly distributed. A small minority of companies in carbon-intensive sectors account for the vast majority of emissions. We took the equity holdings of BlackRock, Vanguard, State Street, Allianz and LGIM and matched them to emissions data. We found that 10% of their holdings were responsible for 85% of all their portfolio emissions. It follows that even a target covering 90% of AUM could exclude up to 85% of all emissions. Only targets covering 100% of AUM escape this loophole, but just 13 of the 43 targets meet this criteria. The rest of the targets cover 80% or less of AUM .

• NZAMI’s targets are commitments to reduce ‘portfolio emissions’, or the emissions of the companies held by asset managers. But this means that whether they are achieved is a function of the emissions that an asset manager is exposed to, rather than whether they help change real-world emissions. When it comes to the Paris Agreement, it is irrelevant which companies are exposed to what emissions, all that matters is that real-world emissions are declining on pace for net zero by 2050.

• Asset managers often claim that they cannot divest or screen their fossil fuel holdings, because a large proportion of their holdings are locked into index funds. Indeed, this is the rationale many NZAMI members give for only committing to decarbonize a subset of their total AUM. Their targets are designed to apply only to their active funds, which they can reallocate. However, we show that both the rules underlying the indices that these funds track and the specific basket of securities used to track those indices involve a huge element of discretion that can be used in green index investing.

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