US fund groups have larger carbon footprints than European peers

American firms also committing lower initial percentage of AUM to net zero

Large US asset managers are more carbon intensive than their European counterparts, research from MSCI has found.

The group noted in Footprinting the World’s Largest Asset Managers that when looking at the world’s 10 largest asset managers by assets under management (AUM), US firms’ carbon intensity averaged around 200 tons CO2/$1m, while the European firms tended to be around 150 tons CO2/$1m.

This aligned with a 2021 progress report from the Net Zero Asset Managers Initiative (NZAM), according to MSCI, which stated the three European signatories overall had a higher initial percentage of AUM committed to be managed in line with net zero – 20% to 35% – versus US signatories – 10% to 25%.

Research on the sample, which represents $25trn in assets and nearly a quarter of all funds invested globally, looked at ETFs and mutual funds, and established the larger the size of assets under management the higher the financed emissions from those assets. Although this was not a perfect correlation, it was stronger in the US where each $1trn invested led to an extra 10-20 tons of Scope 1 and Scope 2 CO2 emissions.

The most carbon-intensive asset manager with the highest financed emissions was a global bond fund manager. MSCI stated it had “significant exposure to emerging markets and high yield debt”.

However, equity and fixed income assets managed by the 10 fund groups did not vary much in carbon intensity, MSCI found. Generally, a bigger carbon footprint for equity assets meant a bigger carbon footprint for fixed income.

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While MSCI acknowledged asset managers are increasingly seeing they have a key role in the transition to net-zero emissions, it suggested firms signing up to be net zero assess the carbon footprint of their whole book of assets in order to get a baseline for decarbonisation targets and for monitoring progress of net-zero alignment.

Last week, NZAM published initial targets for 86 investors, bringing the total that have now set initial targets to 169 representing $21.8trn. The initiative stated 21 signatories have joined since the last update on numbers in May this year, meaning there are now 291 members in total, representing assets under management of more than $66trn.