LCP is urging pension schemes and institutional investors to look beyond industry pledges when assessing whether asset managers are truly committed to net zero.
The consultancy says that industry initiatives such as the Net Zero Asset Managers Initiative (NZAMI) provide useful signals of intent but recent changes to the framework highlight the need for independent scrutiny of managers’ climate strategies.
LCP has set out four key questions for schemes to ask their managers to support this, which include whether the manager has set a net zero target. LCP says investors should look for a clear statement of intent both at the firm-wide and fund level.
It says: “Evaluating carbon emissions is well established for equities and bonds but is less straightforward for alternative or illiquid assets. As a result, many managers exclude these from firm-level net zero commitments. LCP expects managers to address any data gaps to properly assess portfolio risks.”
The second question is whether the manager has set an interim target as shorter-term goals, such as for 2030, are just as important as longer-term ambitions for 2050.
LCP says: “Managers should be able to demonstrate progress towards their stated targets, whether those commitments are made at the manager or fund level.”
Another question investors should ask is whether the manager is vocal on net zero. Genuine commitment means not only engaging with investee companies to encourage better climate practices but also influencing the wider market.
The firm says: “They can also influence the wider market by engaging with policymakers, publishing research and collaborating with peers to amplify their impact.”
Finally, investors should consider whether the manager has accounted for the broader implications of the climate transition. Net zero strategies should not, where possible, come at the expense of jobs, health, or communities.
According to LCP, asset managers that are serious about net zero will demonstrate transparency, measurable progress and a clear ability to manage both the risks and the wider impacts of the transition.
LCP says: “Managers who are best in class at managing climate risks should be able to explain how they are addressing this.”
LCP associate consultant Charlotte Dawkins says: “Industry pledges can be a helpful starting point, but they do not offer the full picture. To really understand a manager’s commitment to net zero, investors need to look beyond the labels and assess their practices, from setting targets to demonstrating progress to engaging with companies. It is only by asking the right questions that investors can gain real confidence in their managers’ climate credentials.”