In early 2021, the financial industry launched an initiative called Net Zero Asset Managers (NZAM). Its mission? To align global asset managers with the goal of limiting global temperature increase in line with the Paris climate accord.
On the surface, it seemed like an appealing idea.
If firms could work together to move investments away from polluting industries and into cleaner technologies, that would help avoid climate catastrophe. The idea proved popular enough that it was folded into the Glasgow Financial Alliance for Net Zero (GFANZ), an even bigger financial industry alliance that was rolled out with a lot of fanfare for last year’s climate talks in Scotland.
But barely a year and a half later, several of the largest financial institutions were thinking of quitting the alliance. And on Dec. 7, 2022, Vanguard—the world’s second largest asset management firm, with $8.1 trillion in assets under management—announced its withdrawal.
What happened? And how should financial regulators worldwide plan for getting money out of polluting industries and into the transition to a livable future?
To answer that, we need to unpack the vagueness of the term “net zero”—and ultimately, the flawed incentive structure of capitalism itself.