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August 9, 2022updated 11 Aug 2022 12:31pm

The holes in asset managers’ Scope 3 reporting

While many big fund managers have set net-zero targets for their portfolios, most omit Scope 3 emissions or report them selectively. Capital Monitor analysis reveals the extent of such activity, which looks to be facing pressure from the Race to Zero initiative.

By Polly Bindman

Frame representing scope 3 emissions
Which emissions are in the frame? Asset managers are being choosy on their Scope 3 reporting. (Photo by Lisa-Blue via iStock/Getty Images)
  • While 83 of the 273 asset managers signed up to the Net Zero Asset Managers initiative (NZAMi) have set interim net-zero targets for 2030 incorporating their investment portfolios, most exclude Scope 3 emissions of the underlying companies.
  • Portfolio companies’ Scope 3 emissions data is admittedly scarce as yet, but there is also mixed messaging between investor alliances over Scope 3, and the targets set by NZAMi members are full of loopholes and omissions.
  • A June update to guidance from the Race to Zero initiative indicates that NZAMi signatories will soon have to start counting all Scope 3 emissions or risk having to leave the collective.

While it is common for asset managers to report on their Scope 1, 2 and ‘upstream’ Scope 3 emissions, such as those relating to employees’ business travel, very few appear to report financed emissions in their company reports. These are the greenhouse gas emissions associated with a financial institutions’ loans and investments in a reporting year; the bulk of fund managers’ emissions is inevitably linked to their portfolio companies’ Scope 3 emissions.

As Capital Monitor has reported, Vanguard, the second largest fund manager in the world by assets, excludes financed emissions from its company reporting, while BlackRock states in its TCFD report that including financed emissions in its reporting “would be 100% double counting”. Similarly, analysis of the reports of other large asset managers – including Amundi, Fidelity International, Invesco and T. Rowe Price – reveals scant reference to financed, or ‘downstream’, Scope 3 emissions.

Major omissions in Scope 3 reporting

This stance appears to run counter to stated net-zero aspirations. So far 83 asset managers, representing $42trn in assets under management (AUM), have already set interim 2030 targets for their portfolios under NZAMi, arguably the most influential alliance of asset managers focused on reaching net zero.

While this is a huge sum of assets that are now, according to the NZAMi, on track to halve emissions by 2030, the targets themselves contain omissions. First off, as the chart below shows, targets set under the initiative only cover, on average, 39% of their total assets. This means the actual AUM covered is $16trn. Vanguard, for example, has set an interim target for just 4% of its investment portfolio, the second lowest figure.

Despite all 83 asset managers therefore committing to take action on their portfolio companies’ emissions, only a small handful include the underlying Scope 3 emissions of these companies. BlackRock, for example, states that its target does not include ‘financed emissions’.

It is admittedly early days for corporates to disclose Scope 3 emissions, so it is in turn hard for their investors to report them without relying on estimates or proxies. 

Of the 83 asset managers (84 including BMO Global Asset Management’s two separate targets for its EMEA and Canada divisions), only nine state that their target includes their financed Scope 3 emissions. Meanwhile 27 reference including some, or ‘material’, Scope 3 emissions, while 48 say they do not currently include Scope 3 financed emissions within the scope of their targets, with most stating they aim to do so when more data becomes available.

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Scope 3 gap

Even where financial institutions make company transition plans a part of their targets, the vast majority of those targets only apply to their portfolio companies’ Scope 1 and 2 emissions. This is in line with the NZAMi’s recommendations, that members “take account of portfolio Scope 1 and 2 emissions and, to the extent possible, material portfolio Scope 3 emissions”, within their 2030 targets.

Materiality is not fully defined by NZAMi, although there are multiple methodologies that fund managers can apply to determine materiality: the Paris Aligned Investment Initiative’s Net Zero Investment Framework (NZIF); the Science Based Targets initiative for Financial Institutions (SBTi); and the Net Zero Asset Owner Alliance Target Setting Protocol (TSP).

Under the SBTi’s guidance for financial institutions, for example, financed Scope 3 emissions must be taken into consideration when they represent more than 40% of the emissions value chain.

Mixed messaging on emissions

Capital Monitor analysis shows that for the handful of asset managers that fully or partially include their portfolio companies' Scope 3 emissions within their targets (see chart below), their rationale for doing so is sometimes unclear.

For example, 16 of the 36 companies that state they either fully or partially include Scope 3 follow the SBTi approach for financial institutions. However, it seems asset managers are interpreting the SBTi guidance differently. Massachusetts Financial Services (with $662bn in AUM), for example, says "financed emissions will include Scope 1 and 2 emissions and Scope 3 to the extent they are material to the sector. This is in reference to SBTi requirements, and to the extent possible based on the quality of available data".

Swiss firm LGT Capital Partners ($85bn AUM), which employs the same methodology, says its target is limited to portfolio Scope 1 and 2 emissions only. It argues that Scope 3 data coverage is “not yet sufficient” but intends to include it over time.

Another important caveat is that 17 of the NZAMi signatories – including Allianz Global Investors, Axa Investment Managers, Digital Bridge, La Banque Postale Asset Management and Legal & General Investment Management – are also SBTi signatories. The rest are therefore not beholden to its requirements.

Investors in a bind?

While it is up to the discretion of asset managers whether to include their portfolio companies’ Scope 3 emissions within their targets under the NZAMi, that may be set to change, thanks to the United Nations Framework Convention on Climate Change Race to Zero, which gives accreditation to the NZAMi.

In June, the Race to Zero released updates to its criteria, one of which was “more explicit requirements for setting Scope 3 emissions targets, notably ensuring financial institutions address all financed/portfolio/facilitated emissions in their planning”.

New partners to the Race to Zero must immediately adopt this strengthened criteria to join the campaign. Existing partners, including the Glasgow Financial Alliance for Net Zero (Gfanz), must set interim 2030 targets consistent with a 50% reduction in emissions, that must include Scope 1, 2 and 3 emissions. This includes all “portfolio/loanbook/insured/facilitated emissions, which are composed of the investee companies and/or clients’ emissions, including the Scope 3 of the underlying investee companies/ clients”.

While Race to Zero’s Expert Peer Review Group (EPRG) recognises that some organisations, such as asset managers, do not exert control over all their assets, it asks them to detail how they will either influence or directly control the alignment of all their assets with a 1.5°C-aligned trajectory. Where emissions are "not material", EPRG asks all networks “to follow best practices appropriate for their respective sectors and regions,  and considers “material” a “relatively low bar for inclusion”.  

As such, in order to remain part of the Race to Zero initiative, it would appear that Gfanz signatories will have to account for and set targets covering their portfolio companies’ Scope 3 emissions. As the focus on financed emissions intensifies, it may be harder for asset managers to cherry-pick what they include.

Capital Monitor is hosting the Webinar series, Making Sense of Net Zero. Find out more information on

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