Today, the Sierra Club, BankTrack and a global coalition of 22 advocacy groups sent an open letter to the Net Zero Asset Managers Initiative (NZAM), urging the initiative to update expectations for its members to reflect the latest Race to Zero criteria on net zero.

The UN-backed Race to Zero campaign, of which NZAM is a partner, updated its criteria in June to explicitly require its partners to phase down and out all unabated fossil fuels as part of a just transition aligned to a 1.5°C scenario. In September, the Race to Zero issued clarifications on its guidance that provides flexibility for transition planning while reaffirming core elements of the criteria. Ultimately, Race To Zero partners, like NZAM, must commit to ensure that their financial firm members are aligned with the Race to Zero criteria. 

NZAM membership includes 273 asset managers representing over $61.3 trillion USD in assets, meaning the initiative has the potential, and the responsibility, to play an important role in limiting global warming to 1.5ºC. Major asset managers including BlackRock, Vanguard, State Street, Fidelity, and many others are members of NZAM and partners in Race to Zero.

"When the Race to Zero campaign updated its criteria, it affirmed what has been obvious for years: if financial institutions want their net-zero commitments to be credible, they must phase out financing for new fossil fuel development. Now NZAM leadership must get serious about upholding these criteria and make it clear that asset managers cannot achieve their climate commitments while financing the expansion of fossil fuels and failing to hold the companies in their portfolios accountable to align with the science," said Jessye Waxman, Senior Campaign Representative in the Sierra Club's Fossil-Free Finance campaign.

The letter calls on NZAM to, at minimum, provide clear guidance to its members on how best to bring their policies into alignment with the new Race to Zero criteria. The letter recommends the guidance be completed in time for NZAM members to update their policies by the June 2023 deadline for compliance. The letter specifically calls for:

• A commitment to 1.5ºC scenarios with no or limited overshoot, ensuring targets include absolute emissions;

• A commitment to manage all assets in all asset classes in line with the attainment of net zero emissions by 2050;

• A public transition plan covering actions to be taken within the next 12 months, the next 2-3 years, and by 2030;

• A pledge to adopt the policies needed to achieve the phase down and out of all unabated fossil fuels, including no new coal projects, no new oil and gas fields, reductions in methane emissions, and no reliance on unproven future technologies;

• A pledge to adopt the policies needed to achieve a global just transition, including deforestation-free supply chains, protecting nature, and protecting indigenous rights; and

• Alignment between lobbying activities and net zero operations.

The latest Race to Zero criteria, coupled with increasing pressure by advocacy groups, comes at an important time for BlackRock, the world’s largest asset manager. In recent years, CEO Larry Fink has been a vocal proponent for sustainable investing. But recently, BlackRock has been seen as backsliding on its commitments, and just last week, Fink made concerning comments about deepening Europe's reliance on heavy-emitting fossil fuel infrastructure.  The updated Race to Zero criteria also puts increased pressure on Vanguard, whose climate commitments fall far below its industry peers as it continues to invest billions of dollars in new fossil fuel expansion and fails to align its portfolios to a credible net zero pathway.

Quotes from advocacy groups

“The updated Race to Zero starting criteria, emphasizing the need for all members to start acting now on fossil fuels, merely states the obvious to anyone that understands both the cause and the scale of the climate crisis, yet they lead to quite some turmoil amongst the GFANZ member alliances of Race to Zero. But signing up to GFANZ was, and is always going to be about ending your fossil fuel finance, and this requirement comes not a day too late,” said Johan Frijns, Director of BankTrack.

“NZAM should, like any group, live up to their public commitments – in this case by updating their member expectations to align with the refined Race to Zero criteria,” said Jessica Garcia, Climate Finance Policy Analyst at Americans for Financial Reform Education Fund. “As Race to Zero sees it, and requires NZAM as a partner to follow, an orderly net-zero transition cannot happen without credible plans that include the phase out of fossil fuels, and interim (sooner than 2050) targets that cover all greenhouse gas emissions, including Scope 3, which for NZAM members is their largest source of GHGs and thus their largest source of financial risk.”

“NZAM brings together a huge amount of financial firepower – the total assets managed by its members represent more than half of the estimated $112 trillion global assets under management. The initiative therefore has the potential to play a powerful role in shifting finance out of the companies destroying our planet and toward clean solutions. Sadly NZAM’s flawed approach to methodologies, weak targets, and failure to address absolute emissions numbers, mean that it is not fit for its purpose of decarbonizing investments. NZAM must update its approach to require its members to align with the UN Race to Zero criteria and in particular to require them to make clear to the companies building new coal, oil and gas projects that they must stop or face financial consequences,” said Paddy McCully, Senior Analyst at Reclaim Finance.

Similar letter sent to Net Zero Banking Alliance

The letter comes just weeks after a similar coalition of advocacy groups sent a letter to the Net Zero Banking Alliance (NZBA), urging the alliance to encourage its member banks to phase out their financing of fossil fuel development in order to align with the updated Race to Zero criteria. NZBA is the bank-focused sister alliance of NZAM, and shares 22 bank members with NZAM.

In response, several US banks including JPMorgan Chase, Morgan Stanley, and Bank of America have reportedly threatened to leave the Glasgow Financial Alliance for Net Zero (GFANZ), and the associated Net Zero Banking Alliance, over legal concerns related to the updated Race to Zero criteria. After the banks’ threats and the Race To Zero campaign’s clarified guidance, the Sierra Club issued a statement calling for the major banks to follow through on their net zero commitments regardless of their membership in the initiative.