Introduction

The report explores strategies to elevate asset manager net-zero engagement. The Alliance’s members aim to transition their investment portfolios to net-zero greenhouse gas (GHG) emissions by 2050, aligned with 1.5°C pathways. A key element of this commitment involves engaging with asset managers and advocating for corporate and industry action toward a low-carbon transition. Systemic climate risk is identified as a critical challenge for investors, highlighting the need for coordinated efforts between asset owners and managers to address these risks effectively. The report urges asset managers to adopt transparent, outcomes-focused strategies to align their engagement activities with asset owners’ long-term goals.

Defining climate engagement

Climate engagement, as outlined in the report, involves two key criteria: raising climate risks or opportunities with issuers and setting clear expectations for action. The report notes that asset managers should address these risks systematically, with a focus on achieving real-economy outcomes. By engaging in active dialogue with companies, asset managers can influence their transition strategies. The report cites qualitative examples of successful engagements, such as pushing issuers to adopt science-based emissions reduction targets. These efforts are vital in managing climate-related risks and accelerating decarbonisation across sectors. Additionally, the report stresses that asset managers should align their engagement practices with established frameworks such as the Task Force on Climate-Related Financial Disclosures (TCFD).

Principles for asset managers’ climate engagement

The report sets out four key principles for asset managers’ climate engagement:

Governance and integration: Asset managers must integrate climate engagement across their entire business to ensure alignment with their broader climate strategies. This integration should cover governance structures, portfolio management, and executive decision-making. Asset managers are encouraged to adopt transparent governance processes, ensuring that their climate engagement activities are consistent and accountable. By implementing these measures, they can ensure that climate risks are systematically addressed across portfolios.

Setting and publishing a climate engagement strategy: Asset managers should publicly commit to a climate engagement strategy that aligns with the net-zero ambitions of asset owners. The strategy should outline clear, time-bound expectations for issuers, focusing on sectors most affected by climate risks. The report highlights expectations, such as reducing emissions in line with science-based targets and ensuring alignment with sectoral decarbonisation pathways. The recommended frameworks for these expectations include the Science-Based Targets initiative and the Transition Pathway Initiative.

Climate engagement practices: Asset managers should prioritise climate engagement efforts based on strategic importance and allocate sufficient resources to ensure success. The report stresses the importance of tracking engagement outcomes, sharing insights across teams, and ensuring accountability. For example, asset managers are expected to use internal tracking systems to monitor progress, such as emissions reductions and policy changes resulting from engagement efforts.

Transparency and accountability on climate engagement: Asset managers should disclose the outcomes of their climate engagement activities, enabling asset owners to assess their effectiveness. This includes regular reporting on engagement objectives, challenges faced, and successes achieved. The report calls for asset managers to provide detailed disclosure on their climate engagement strategies, allowing stakeholders to evaluate whether their practices align with asset owners’ long-term net-zero goals. Furthermore, asset managers are expected to communicate their progress publicly, including disclosing instances where engagement efforts have not succeeded in achieving desired outcomes.

Conclusion

The report concludes by emphasising the critical role of asset managers in driving net-zero alignment across investment portfolios. To ensure success, asset managers must adopt transparent, outcomes-focused engagement strategies that address both company-specific and systemic climate risks. The Alliance encourages asset owners to integrate the principles outlined in the report into their selection, appointment, and monitoring processes, ensuring that asset managers remain accountable for their climate engagement activities.