The Net Zero Asset Managers initiative has suspended its activities after the world’s largest asset manager BlackRock left it. What should UK pension trustees do as managers waver or backtrack on climate commitments in the Trump era?

Ahead of Donald Trump taking office as president of the United States on Monday, corporate America has been racing to demonstrate its alignment. While the media focus has been on big tech bosses and regulation, the finance sector is not immune. As the wind in the US is changing – fanning the flames in more than one way – BlackRock is among the first to fall in line with the incoming administration.

In the past, the asset management behemoth was under public scrutiny over its stance on climate change, before positioning itself as a climate apostle, albeit later than most. Now, it has seemingly caved to pro-oil investors and legal threats.

NZAM said recent developments in the US, together with different regulatory and client expectations in investors’ respective jurisdictions, have led to NZAM launching a review “to ensure NZAM remains fit for purpose in the new global context”. 

As one of the most influential countries in the world – with the greatest portion of private assets – is expected to roll back agreements and regulations on climate change notwithstanding the scientific consensus, it poses a problem for free market players. Can and should they play to the tune of all jurisdictions and clients they serve? If investors’ views are diametrically opposed and managers, driven by market forces, work with both sides, what does this say to UK pension funds about how seriously those managers take climate risk?

Many of the global firms managing significant assets from US investors have come under pressure to scale back their climate commitments, often from oil-related businesses, noted Karen Shackleton, the chair and founder of impact investing group Pensions for Purpose.

Keeping both European and US clients happy will inevitably result in mixed messaging by managers, she said.

“For passive managers this is a particularly thorny issue because engagement with management of the underlying companies in which both client groups invest would have a very different narrative depending on the preferences and geographic location of the client,” Shackleton said. “This does not sit well with a UK or European asset owner keen to progress climate transition.”

At best, engagement will be diluted because the asset manager will only represent those clients’ assets for whom climate change is a concern, she said.

“At worst, the engagement could end up resulting in a vague discussion about net zero goals and very little pressure on company management to do more,” she warned.

To counter this, UK and European investors should continue to hold “tough conversations” with any managers that have scaled back their efforts, Shackleton said, and not shy away from taking drastic action.

“I would urge pension funds to set clear goals as to what they expect to be achieved on climate action engagement. If the asset manager cannot commit to those goals, then perhaps it is time to seek a more authentic manager who is better aligned to the fund’s investment beliefs,” she advised.

Mike Clark, founder of specialist consultancy Ario Advisory, said it was “was about time” NZAM carried out a review, in a blog post for mallowstreet published on Wednesday. 

Clark thinks governments have “over-delegated” climate action to the finance sector, and that BlackRock’s departure from NZAM could serve as a wake-up call. Only governments have tools that can shape markets – such as regulation and taxation – while market actors respond to the investment environment, he suggests. 

The UK government should now create a national transition plan, he says: “Let’s just get on with it.”