NZAM suspension: iceberg ahead

With the recent scaling back of diversity equity and inclusion (DEI) requirements for regulated firms from the UK’s Financial Conduct Authority, the toning down of ESG regulatory obligations through the EU’s Omnibus proposals, and the Trump administration’s recent rejection of the Sustainable Development Goals, there has never been a more challenging time to navigate corporate sustainability commitments for financial institutions and others. It is no surprise therefore that NZAM is the latest initiative that finds itself adrift.

Background to NZAM

NZAM launched in December 2020 with the aim of supporting the asset management industry to reach net zero emissions in its investments, specifically with commitments to:

• work in partnership with asset owner clients on decarbonisation goals, consistent with an ambition to reach net zero emissions by 2050 or sooner across all assets under management (‘AUM’);
• set an interim target for the proportion of assets to be managed in line with the attainment of net zero emissions by 2050 or sooner; and
• review interim targets at least every five years, with a view to ratcheting up the proportion of AUM covered until 100% of assets were included,

as well as additional requirements on reporting, engagement and policy advocacy.

The initiative quickly gained traction with hundreds of asset managers including BlackRock, Vanguard Group, State Street, among many others, with Jupiter becoming an early joiner in 2021. 

NZAM Suspension

In January of this year, NZAM unexpectedly announced that it was launching a review of the initiative to ensure it “remains fit for purpose in the new global context”, whilst in the meantime:

• suspending activities to track signatory implementation and reporting;
• removing the commitment statement and list of NZAM signatories from their website; and
• removing targets and related case studies.

This was largely driven by evolving legal, regulatory and client expectations, predominantly in the US where the approach of the Trump administration and certain judicial bodies put pressure on financial institutions to revisit or even abandon previous ESG commitments.  Consequently, investors such as BlackRock, Vanguard, and Baillie Gifford withdrew from the initiative in the months prior, as well withdrawing from other initiatives, such as Climate Action 100+.  

“Although NZAM’s announcement came as a surprise to many asset managers, the review of the initiative is welcomed – it is crucial that the requirements still give asset managers the necessary flexibility to meet their fiduciary obligations”

Rowan Buchanan, Jupiter’s Corporate Sustainability Manager, commented: “Although NZAM’s announcement came as a surprise to many asset managers, including Jupiter, the review of the initiative is welcomed – it is crucial that the requirements give asset managers the necessary flexibility to meet their fiduciary obligations, such as under segregated mandates, whilst setting targets which can be delivered in the real world, in line with governmental and industry trajectories to net zero. That is not to say that we call for a watering down of net zero targets, but a reassessment of how that can be realistically achieved in practice, whilst also meeting regulatory and client needs.”   

NZAM have also confirmed that “the scope for asset managers to invest for net zero and to meet the commitments… depends on the mandates agreed with clients’ and managers’ regulatory environments, and asset managers are subject to fiduciary duties as defined in their jurisdictions”.

Jupiter’s approach

Jupiter currently remains aligned to NZAM’s goal of mitigating material financial risks of climate change, whilst realising benefits of a net zero transition. We also remain an investor participant of Climate Action 100+ as well as a signatory of the Institutional Investors Group on Climate Change and are actively engaging with these industry associations for further clarification of the implications of NZAM’s review in the short and long-term.    

“gone are the days of signing up to something just because it sounds good – you really have to understand the implications and mean it.” 

However, NZAM’s suspension and the backlash on Environmental, Social and Governance “ESG” as a term, have raised important questions about corporate sustainability commitments. Tom Owen, Jupiter Head of Legal and senior manager for Corporate Sustainability noted: “As an asset manager, the questions we must ask ourselves in relation to all our industry associations and initiatives are: ‘what is the ‘value add’?’, ‘are clients asking for this?’ and, ‘how can the requirements evolve in line with client expectations?’. It is fundamental to answer these questions and engage with all stakeholders to understand what it means for them. For the market as a whole – gone are the days of signing up to something just because it sounds good – you really have to understand the implications and mean it.”

Jupiter will continue to review its commitments in line with an NZAM consultation, which is anticipated to be finalised by mid-year, as well as changes to the company’s AUM. Please see our latest Sustainability Report for more information. 

Important information

This commentary is for informational purposes only and is not investment advice. Every effort is made to ensure the accuracy of the information provided but no assurance or warranties are given.

Issued in the UK by Jupiter Asset Management Limited, registered address: The Zig Zag Building, 70 Victoria Street, London, SW1E 6SQ is authorised and regulated by the Financial Conduct Authority. Issued in the EU by Jupiter Asset Management International S.A. (JAMI), registered address: 5, Rue Heienhaff, Senningerberg L-1736, Luxembourg which is authorised and regulated by the Commission de Surveillance du Secteur Financier.

No part of this commentary may be reproduced in any manner without the prior permission of JAM or JAMI.