Net-Zero Pledges Aren’t as Green as You Think, Says New Study

Of the 25 asset managers studied that were members of the Net Zero Asset Manager Initiative, not a single one required companies in their portfolios to stop developing new projects with coal, gas, and oil.

Net-zero pledges have been dominating the world of corporate social responsibility. Over 100 companies with large carbon footprints have signed pledges to commit to net-zero emissions by 2050, according to Climate Action 100+. Investors have looked to these pledges as a source of proof that their engagement strategies are working. Asset managers have also taken the plunge, with 236 managers signing on to the Net Zero Asset Managers initiative, accounting for $57.5 trillion in assets under management.

But a new analysis by Reclaim Finance and three partner NGOs has revealed that despite the promises, many asset managers are not requiring companies to stop developing new coal, gas, and oil projects.

Reclaim Finance created a scorecard system to rank 30 different asset managers based on their climate friendliness. Twenty-five of these managers were members of the Net Zero Asset Managers initiative.

“Leading asset managers are kicking the can down the road without even asking companies to stop worsening the climate crisis,” said Lara Cuvelier, a campaigner at Reclaim Finance, in the press release. “Let’s be clear: drilling a new oil well or opening a new coal mine is not a normal thing to do in a widespread climate catastrophe.”

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The report claims that net-zero criteria is often very vague and leaves room for exclusions and exceptions. While seven of the studied companies do restrict investments in companies that are engaging in new coal projects, three of those companies have created exceptions for this policy.

“Asset managers are not engaging companies on the key climate issues when it comes to limiting global warming to 1.5°C,” said Cuvelier. “Asset managers that provide fresh cash to companies that are ignoring climate science are purely and simply pouring more fuel in the fire.”

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Tags: Asset Managers, Climate Action 100+, Climate Change, ESG, Lara Cuvelier, Net Zero, reclaim finance

Despite the increased volatility of the financial markets and surging inflation, the financial position of most Canadian and U.K. defined benefit pension plans improved during the first quarter of 2022, according to Mercer. [Source] and [Source]

The median solvency ratio of the Canadian DB pension plans in Mercer’s database rose to 108% at the end of March from 103% as of the end of December. Although most plans reported declining investment returns during the quarter, this was more than offset by rising bond yields, which increased by as much as 134 basis points.

As of the end of the first quarter, Mercer estimates 75% of the Canadian plans in its database were in surplus, up from 61% at the end of 2021. Another 15% have estimated funded ratios of between 90% and 100%, while 6% have funded ratios between 80% and 90%, and only 4% have funded ratios of less than 80%.

“2022 has not started off well for the financial markets. However, despite significant volatility, the financial position of most DB plans improved during the quarter,” Ben Ukonga, principal and leader of Mercer’s Wealth Business in Calgary, said in a statement. “But with the crisis in Ukraine, and the uncertainty on how it will be resolved, the world, financial markets and DB pension plans have entered a whole new era of increased volatility and uncertainty.”

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Mercer said a shifting geo-political environment and record levels of inflation are contributing to volatility in the markets, and that now is the time for plan sponsors with inadequate governance and risk management structures to have them set up or improved.

“The need for proper governance and risk management has never been more apparent,” said Ukonga. “Although true governance and risk management practices and structures should be in place before the external shock occurs.”

According to Mercer, a typical balanced pension portfolio would have lost 7.1% during the first quarter as global equity markets fell off sharply and the U.S. equity market dipped into correction territory in February. Additionally, equity volatility rose on investors’ concern that the war in Ukraine and sanctions against Russia could lead to a material reduction in the global supply of energy and agricultural commodities.

“Russia’s invasion of Ukraine has not only created a humanitarian crisis, but has also disrupted global trade and has led to a reduction in both consumption and investments,” Venelina Arduini, principal at Mercer Canada, said in a statement. “In this environment, we can expect lower yet positive global economic growth going forward, with inflation peaking later and at higher levels.”

Meanwhile, the accounting deficit of defined benefit pension plans for the U.K.’s 350 largest listed companies fell to £69 billion ($89.7 billion) in March, from £76 billion as of the end of February and as of the end of 2021 (the deficit rose £4 billion in January, and then dropped £4 billion in February). Rising corporate bond yields during March reduced liabilities to £837 billion as of the end of the month, from £846 billion at the end of February and £913 billion at the end of 2021. And asset values declined slightly to £768 billion from £770 billion the previous month and £827 billion as of the end of 2021.

“The main driver of the change has been bond yields and their impact on liability values,” Tess Page, Mercer UK’s wealth trustee leader, said in a statement. “Many trustee boards and sponsors with clear journey plans may now find themselves comfortably on track or even ahead of target, and will be taking advantage of de-risking opportunities.”