Net zero: are asset managers really walking the talk?
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In January 2025, the Net Zero Asset Managers Initiative (NZAMI) announced a review of its entire organisation, following a series of high-profile manager departures from the initiative.
At its launch in 2020, NZAMI was met with widespread support from fund managers. Now, a few years on, more managers are questioning the benefits of climate pledges and commitments. So, what has changed?
Number of NZAMI signatories had consistently increased before the initiative was suspended
The Trump administration in the US is a large source of anti-climate sentiment, strengthening the anti-ESG movement. However, scepticism about climate investing predates this.
Managers such as BlackRock have cited legal pressure in the US as a reason for withdrawing from NZAMI. The lawsuits it refers to have been going on since 2022, before Trump’s latest term in the White House.
The accusation levelled by US lawmakers is that the three largest US asset managers (BlackRock, State Street and Vanguard) have colluded to suppress the fossil fuel sector, and in doing so have violated antitrust laws. They also alleged these managers have acted against the best interest of investors by prioritising climate concerns over financial returns – without any consideration that addressing climate risk can help protect financial returns in the longer term.
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What is the future of NZAMI?
With several significant departures, the initiative is currently under review. The future of the Net Zero Asset Managers Initiative (NZAMI) is uncertain. The organisation is now reviewing its structure, reporting requirements and the language used in its commitments. Its list of signatories and statement of commitment has been removed from its website.
On the plus side, there has been a lot of engagement from the fund manager community on NZAMI reforms - even managers who have left the initiative are engaging with the consultation which has now gone live.
Conversations we have had with managers suggest that there is a hope that this consultation could lead to a new NZAMI that will provide managers with useful tools and frameworks, without feeling like they are in the spotlight for signing up to an initiative that had become politicised and criticised. In this sense, we welcome the review of NZAMI and the fact that the initiative is evolving.
A key challenge for NZAMI will reinforcing the idea that good climate risk management and financial performance are not opposing goals. Some investors will question whether a manager’s fiduciary duty to generate the best possible return on investments is consistent with a commitment to help achieve net zero emissions. In their view, investors would fare worse financially if hampered by the limitations of avoiding carbon-intensive investments.
At LCP, we believe ESG risks, including climate risk, can be financially material. In case of climate risk, addressing it should result in better outcomes for our clients and any beneficiaries that they represent.
Climate change risk can be grouped into two distinct threats
- Firstly, investors must navigate transition risk, which is the risk that high-emitting businesses must incur high costs to adapt to a decarbonising world.
- Secondly, investors need to grapple with the challenge of physical climate risk, which is the impact on companies, investments and the global economy caused by the damage of our planet.
Neglecting these two different sources of risk, far from boosting returns, is likely to result in a poor financial outcomes. This is especially pertinent for long-term investors such as pension schemes, foundations and charities, who need to generate healthy returns for years to come.
We are not alone in this view. The belief that climate issues form a very real source of risk remains a widely held view in the industry. As such, we believe there is still a need for, and investor demand for, the principles that NZAMI originally supported.
We expect the results of the consultation to be released in the coming months. We look forward to seeing how NZAMI addresses these issues while continuing to support the fund management community in addressing climate and net zero challenges.
Without NZAMI, how does LCP assess whether a manager is addressing net zero?
NZAMI, and the commitments that managers had signed up to, gave investors a clear indicator from the manager on their intentions to meet certain standards around targeting net zero.
At LCP we have always looked deeper at a manager’s net zero commitment beyond membership of certain groups. With or without NZAMI, our research of funds and managers follows a robust framework to assess a manager’s commitment to net zero.
Here are some of the things we can look at to establish a manager’s climate and net zero credentials:
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The first question to ask is the simplest: whether the manager has set a net zero target for the fund we are considering. We look for a clear statement of a goal for the fund which is written into the fund’s literature.
We also look at whether a manager has set a firm-wide target for net zero. This may not cover all their assets under management, and it may or may not apply to individual funds.
Evaluating carbon emissions for some asset classes such as equities and bonds is more established, whereas the methodology for alternative or illiquid assets is less straightforward. Therefore, many managers exclude these assets from their firm-level net zero commitments. We expect managers to tackle these data gaps, so they can properly assess the risks in their portfolios.
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Another sign that a manager is taking net zero seriously is whether they have set interim targets.
Ideally we would want to see an interim target, say at 2030, for the level of carbon emissions associated with a portfolio. What is achieved in the next decade is as important as what is achieved by 2050.
The individuals managing your assets now probably won’t still be doing that in 2050, so ensuring their interests are properly focused in the interim matters.
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Setting a target somewhere in the future alone doesn’t guarantee action.
Your manager should also be able to demonstrate progress against a net zero target, whether at the fund or the manager level.
An important point to look out for on progress against the target is how that progress has been achieved.
Disinvesting from carbon-heavy companies, like fossil fuel producers, is an easy way to lower your portfolio’s carbon emissions but there is a big problem with it. Namely, it doesn’t drive real world reduction in carbon emissions.
For example, an oil company will keep on drilling and creating emissions, just they would be funded by someone else’s money instead of yours.
So, in progressing against a net zero target, a manager with a credible plan will understand the importance of reducing carbon emissions via engagement: encouraging their investee companies to improve their environmental practices, and in this way drive real-world change.
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The manager should be in regular dialogue with their investee companies, encouraging better practice with regards to carbon emissions.
We also like to see managers engaging with a wide range of stakeholders. For example, consulting with policymakers, producing their own thought leadership, or collaborating with other managers to amplify their engagements.
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We also look to see if a manager has considered the ‘just transition’, i.e. how decarbonisation goals intersect with social issues.
Decarbonisation should not negatively impact people’s livelihoods, health or environment.
Managers who are best-in-class in their management of climate risks should be able to tell you how they are managing this one.
Conclusion
Assessing a manager’s net zero commitment requires a closer look at their actions, rather than just the initiatives they have signed up to.
Managers who are meaningfully committing to tackle the threat of climate change should:
- set clear and measurable targets
- demonstrate progress
- engage with companies and other stakeholders
- address the broader social impacts of climate transition.
To really understand your managers’ credentials in this area, look beyond the NZAMI label, ask your asset managers the five questions above, and engage with them on their answers.
For more on how we approach climate change more broadly
Visit Responsible InvestmentInterested in learning more? Listen to our podcast
Your questions answered
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Launched in 2020, the Net Zero Asset Managers initiative (NZAMI) is a global group of asset managers committed to supporting the goal of net zero greenhouse gas emissions by 2050 or sooner.
NZAMI members pledged to work with clients to decarbonise investment portfolios, set interim targets to increase the proportion of assets to be managed under net zero principles, and regularly report progress.
The initiative was part of the broader Glasgow Financial Alliance for Net Zero (GFANZ).
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A net zero target by 2050 means an asset manager commits to ensuring that a portion of the assets they manage will produce no net carbon emissions by that year.
2050 is a key year, as this deadline reflects scientific guidance from the UN’s IPCC, which states that global emissions must reach net zero by then to avoid the worst impacts of climate change. This target aligned with the Paris Agreement goal to limit global warming to 1.5°C–2°C above pre-industrial levels.
Achieving net zero involves cutting emissions as much as possible, and offsetting any remaining emissions through methods like reforestation.
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Political shifts have added fuel to existing ESG scepticism. Firms like BlackRock and Vanguard left due to legal and political pressures in the US, including lawsuits claiming they harmed fossil fuel interests and prioritised climate goals over returns.
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NZAMI is reviewing its structure, reporting rules, and language after major departures. While its signatory list is offline, many managers — current and former signatories — are engaging in the consultation to shape a more practical, less politicised framework.
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Investors should examine a manager’s net zero policies, climate risk management and decarbonisation reporting. LCP uses a detailed framework to evaluate strategies beyond public pledges or group memberships.
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