How Can Asset Management Boost Sustainability Strategy?

As the stewards of trillions in global capital, asset managers play a pivotal role in directing investment flows, influencing corporate behaviour and shaping the future of economies and societies. 

The scale of the industry is staggering – in 2024, global assets under management (AuM) reached a record US$128tn, a 12% increase from the previous year.

But growth is not without challenges. 

Investors, regulators and the public are demanding greater accountability and transparency, particularly when it comes to ESG. 

Read the full story in the August 2025 edition of Sustainability Magazine.

How is climate change defining asset management?

Climate change, biodiversity loss and resource scarcity are no longer abstract risks – they are material factors that can affect asset valuations, returns and long-term viability. Asset managers now routinely conduct comprehensive analyses of potential investments, assessing not only financial metrics but also the environmental impact of companies – evaluating exposure to risks such as climate change, resource depletion and pollution.

“We all know that avoiding the worst impacts of climate change is crucial for the stability and prosperity of global markets,” says Heather Zichal, Global Head of Sustainability at JPMorganChase.

“We also know that a successful transition to a low-carbon economy can drive economic growth, lower future energy bills, create jobs, reduce pollution and help drive technology innovation.”

This integration is not just about risk avoidance; it is also about capturing new opportunities. Companies leading in environmental innovation – such as Tesla in electric vehicles and Ørsted in renewable energy – have delivered substantial returns for investors. 

The ‘S’ of ESG

While environmental issues often dominate the ESG conversation, social factors are equally vital. These include labour practices, human rights, diversity and inclusion, product safety and community engagement. 

Poor social performance can lead to reputational damage, regulatory fines and even systemic risks that affect entire markets.

The importance of governance in asset management

Governance has always been central to asset management, but within sustainable finance its scope is broadened significantly. Today, governance encompasses not only oversight and compliance but also ethical investment decisions, stakeholder engagement and transparency. Strong governance structures are essential for managing ESG risks, ensuring accountability and fostering long-term value creation.

Regulatory developments have reinforced the importance of governance. The UK’s Financial Reporting Council’s revamped Stewardship Code now requires asset managers to report not just on policy but on activities and outcomes, particularly regarding ESG factors. 

Aligning investment strategies with global sustainability goals

Asset managers are increasingly aligning their investment strategies with broader sustainability goals, such as the United Nations Sustainable Development Goals (SDGs) and the Paris Agreement on climate change.

The SDGs provide a comprehensive framework for addressing global challenges, from poverty and inequality to climate action and biodiversity. 

According to the United Nations Conference on Trade and Development, the investment gap to achieve the SDGs in developing countries alone is about US$2.5tn annually.

The Net-Zero Asset Owner Alliance

The Net-Zero Asset Owner Alliance is a prime example of collective action. This group of asset owners has committed to transition their portfolios to net zero carbon emissions by 2050, in line with the Paris Agreement. 

"Mitigating climate change is the challenge of our lifetime,” says Oliver Bäte, CEO of Allianz, a founding member. 

“Politics, business and societies across the globe need to act as one to rapidly reduce climate emissions. We, as asset owners, will live up to our responsibility and, in dialogue with the companies in which we invest, steer towards low-carbon business practices.”

The NZAOA is one of the most ambitious and influential coalitions in the global financial sector’s response to climate change. Established in 2019 by a group of leading institutional investors – including Allianz, CDPQ and SwissRe – in partnership with the United Nations Environment Programme Finance Initiative (UNEP FI) and the Principles for Responsible Investment (PRI), the Alliance has rapidly grown to encompass 87 members across 18 countries, collectively representing more than US$9.5tn in assets under management.

The NZAOA’s core mission is to align its members’ investment portfolios with the goals of the Paris Agreement, specifically aiming to limit global warming to well below 2°C, and ideally to 1.5°C, above pre-industrial levels. To achieve this, members have pledged to transition their portfolios to net zero greenhouse gas emissions by 2050. What sets the Alliance apart is its insistence on science-based interim targets – members must set and publicly disclose five-year decarbonisation targets, with a 22% to 32% reduction in portfolio emissions by 2025 and a 40% to 60% reduction by 2030. These targets cover not just direct emissions (Scope 1 and 2), but also financed emissions (Scope 3), reflecting the indirect climate impact of investment activities.

The NZAOA’s Target-Setting Protocol (TSP) provides a robust methodology for members to calculate and report their progress, but flexibility is maintained to allow for evolving best practices and standards, such as those from the Science-Based Targets initiative (SBTi). Transparency and accountability are central – members must report annually on their progress, ideally following the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD), now part of the International Sustainability Standards Board (ISSB).

Beyond portfolio management, the Alliance is a vocal advocate for systemic change. It actively engages with investee companies to promote stronger climate governance and disclosure, and lobbies policymakers for measures such as carbon pricing and the elimination of fossil fuel subsidies. Through collaboration with other initiatives under the Glasgow Financial Alliance for Net Zero (GFANZ), the NZAOA helps set industry standards and catalyse broader market transformation.

Navigating ESG risks

Effective risk management is at the heart of sustainable asset management. ESG risks – ranging from environmental disasters and regulatory changes to social unrest and governance failures – can have significant impacts on financial performance and reputation. Asset managers must embed ESG risks into their risk management frameworks, using scenario analysis, forward-looking metrics and active engagement with investee companies.

Similarly, social risks – such as poor labour practices or community opposition – can disrupt operations and erode value. Governance failures, including fraud or lack of board oversight, can lead to regulatory sanctions and loss of investor confidence. 

Stakeholders, consumers, and the challenge of greenwashing

Stakeholder engagement and consumer trust are critical in the development of sustainable investment products. The surge in demand for ESG and sustainable finance has been accompanied by concerns over greenwashing – where companies or funds misrepresent their environmental credentials. 

The alignment of investment strategies with global sustainability goals, coupled with robust risk management and a commitment to transparency, will define the next era of asset management.

“Forward-thinking companies could be positioned to help their clients grow their wealth by focusing on navigating the risks and opportunities these social and environmental challenges create for investors’ portfolios,” says Marina Severinovsky, Head of Sustainability, North America at Schroders.

“This is why we believe in the durability of these themes and consider that the long-term driving forces that are observable now will continue to have a global impact for years to come.”

Read the full story in the August 2025 edition of Sustainability Magazine.