Life expectancy 87 or current age.Vanguard ZERO is a Card game developed by Bushiroad International Pte Ltd. Earlier in March, asset managers also received initial guidance for implementing net-zero commitments with the release of the Net Zero Investment Framework Implementation Guide, an effort led by the Institutional Investor Group on Climate Change.Annual contributions set to 15 of salary for initial calculation, or 0 if current age is at or above retirement age. The initiative outlines key requirements for signatories’ commitments to net zero and provides an early benchmark for the industry.
Meanwhile, BlackRock, in its annual letter to clients published in January, laid out its commitment and presented a three-pronged action plan to help investors prepare their portfolios for a net-zero world.Nonetheless, important questions remain. Vanguard also has not publicly elaborated on its net-zero plan apart from a brief statement from its CEO on the NZAM website. It’s critical that their next steps demonstrate their seriousness and urgency in implementing their net zero commitment.BlackRock already had committed to support the global goal of achieving net-zero emissions by 2050 or sooner prior to joining NZAM, while Vanguard had not. This gives them the capacity to set the course for meaningful net-zero action within the asset management sector. Together, they manage over $15.2 trillion in assets, an amount equivalent to about three-fifths of U.S.
The foundational principles present 10 recommendations for corporate net-zero targets that ensure a company reduces emissions at a rate consistent with pathways that limit warming to 1.5 degrees Celsius and takes responsibility for residual emissions.BlackRock and Vanguard contribute almost half the total NZAM signatories’ assets under management of $32 trillion, giving them tremendous influence on the course for net-zero implementation.While a standard for net-zero targets for financial institutions is still on the horizon, BlackRock, Vanguard and other asset managers can use the recently launched SBTi framework for financial institutions to set targets to make their investments consistent with a 1.5C mitigation pathway — a critical part of the net-zero equation. A parallel standard for financial institutions is expected to follow. (The expectation is that they will ratchet up the target until 100 percent of assets are included.) Setting interim targets demonstrate the shorter-term changes the firm will make to deliver on long-term emissions reductions goals.But what is considered a good net-zero target?In September, the Science Based Targets Initiative (SBTi) launched a process to develop a global standard for net-zero corporate targets. Interim targets based in scienceWhile commitments for 2050 are an important signal, financial institutions must deliver swift, dramatic reductions in global emissions over a much shorter timeframe and with near-term actions that avoid lock-in of carbon-intensive infrastructure and behavior.To that end, later this year BlackRock will announce its interim target for the percentage of its assets under management that will be aligned with net-zero in 2030. While we explore these questions in the context of BlackRock’s action plan, Vanguard and other asset managers also should take note. We spotlight four ways it can do so: with strong interim targets by avoiding over-reliance on offsets by improving engagement and by supporting a just transition to net zero.
Indeed, one NZAM requirement for net-zero assets under management is for offsets to be focused on long-term carbon removal where there are no viable alternatives to eliminate emissions (for example, in heavy industry where zero-carbon alternatives don’t yet exist). Offsets are meant to allow companies to compensate for emissions by paying for emission reductions somewhere else or neutralize their emissions by investing in removal technologies.However, they should not distract from the need for real and significant reductions in emissions associated with a company’s value-chain. Minimal reliance on offsetsBlackRock supports the development of global carbon offset markets as a tool to help companies achieve net-zero emissions. The NZAM has pledged to work with SBTi and others to develop standardized methodologies.
But some NGOs view BlackRock’s commitment with skepticism because of its poor record on climate engagement and voting.Despite BlackRock CEO Larry Fink’s calls in 2020 to hold directors accountable for climate action, the firm only supported 14 percent of shareholder resolutions requesting climate-related financial disclosures. This seems aligned with the commitment of NZAM signatories to implement an engagement strategy with clear escalation and voting policy. And in its 2021 letter, BlackRock re-ups its commitment to climate stewardship and engagement. As the largest asset manager in the world, it owns more than 5 percent of the shares in most public companies — an amount that could make or break a shareholder resolution or Board director election. Meaningful engagement on climate actionBlackRock’s stewardship is extremely powerful. For example, this would mean excluding BlackRock’s $85 billion in coal companies from the proportion of its assets under management that it designates as part of its net zero target.
A just transition to net-zeroThere is no doubt that reducing greenhouse gas emissions — and transitioning away from fossil fuels — is a critical component of climate action. At a minimum, BlackRock should use active and escalating engagement strategies to help ensure no new thermal coal generation is developed and no further tar sand resources are exploited, and also that phase-out of existing unabated capacity is undertaken in line with net-zero pathways — as recommended by the Net Zero Investment Framework Implementation Guide.To push the net-zero movement forward, BlackRock needs to show more consistent support for corporate transparency and climate action in its voting in 2021. While BlackRock cannot divest from all carbon intensive sectors, it can engage with carbon intensive companies to encourage meaningful steps toward climate action. This means its investments represent a slice of the entire economy. In 2020, the firm voted against all 48 resolutions to promote greater transparency into political spending and lobbying at S&P500 companies, while only supporting 18 percent of climate lobbying resolutions.One reason why stewardship and engagement are so critical for BlackRock is because it owns the investment universe.
Doing so will require that the firm takes to heart Fink’s message from his 2019 CEO letter on social purpose when implementing its net-zero commitment. But he offered no commitments on how the firm will ensure its net-zero strategies reflect this.BlackRock cannot solve the climate crisis alone, but it can help set the course to create a better future. It is therefore vital for net-zero emissions targets to incorporate robust social and environmental principles.Fink acknowledged the importance of these issues in his 2021 letter to CEOs, as well as the direct relationship between racial justice and economic inequality to climate change. If the net-zero transition is to be sustainable and credible, it also must lead to a more inclusive, resilient and equitable economy and achieve the broader goals of the Paris Agreement.
Nevertheless, it is a huge step for the asset management industry that the two largest managers have joined the NZAM. We need to see more clarity around their implementation plans soon. Leaders in the spotlightWhile Vanguard’s decision to join NZAM is welcome, the firm has provided far less detail on its net-zero plan than BlackRock.
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