The members of the now 30-strong UN-convened Net-Zero Asset Owner Alliance have collectively agreed the range within which their first set of concrete portfolio decarbonisation targets will fall.
Based on an assessment of pathways to the Intergovernmental Panel on Climate Change 1.5°C scenario, Alliance members determined that greenhouse gas emission (GHG) reductions for the period 2020-2025 should range at least between -16% and -29% from 2019.
The Alliance said implementation of targets within this range would represent a substantial decoupling of asset owners’ portfolio GHG emissions from the global economy. Individual Alliance members are to set their portfolio targets in the first quarter of next year.
The Alliance said while some members would set large reduction targets, others’ would be at the lower end of the range either because the asset owners were further along their journey to net-zero or may face geographic or policy constraints requiring a slower initial decarbonisation pace.
The approach to individual members’ and collective target-setting and reporting for the five years to 2025 is set out in a “protocol”, which, as part of the group’s aim to be “as transparent and as robust as possible”, has today been published for a one-month public consultation.
The protocol sets out a recommended four-part structure for target-setting. This is because of “the complex nature of leveraging ownership and financial strategies to drive real world change, and tracking impacts of these actions”, according to the Alliance.
The Alliance has a strong focus on driving real world impact, primarily through engagement with corporate and policymakers as well as contributing capital required to finance the transition.
“Although decarbonisation of portfolios could be easily achieved by selling carbon intensive investments, it is highly questionable if such actions alone would have a positive impact on the real economy,” it said in a statement.
“Reaching net-zero is not simply reducing emissions and carrying on with the business models of today”
Günther Thallinger, Alliance chair and member of the board of management at insurer Allianz
“Additionally, it might undermine Alliance members’ ability to engage with these corporate to effect reductions in the real economy.”
Günther Thallinger, Alliance chair and member of the board of management at insurer Allianz, said: “Alliance members start out by changing themselves and then reach out to various companies to work on the change of their businesses.
“Reaching net-zero is not simply reducing emissions and carrying on with the business models of today. There are profound changes and opportunities that will come from the net-zero economy, we see new business opportunities and strong wins for those who are ready to lead.”
According to the target-setting structure set out in the protocol, Alliance members will set sub-portfolio targets and later, once data coverage and methodological credibility allow, entire portfolio emission reduction targets; sector targets; corporate and policymaker engagement targets; and “financing transition” targets.
“The implementation of each part will have a particular impact on investee companies and emissions,” the draft protocol states. “When combined, the four parts enable an asset owner to contribute to the desired transformation towards a net-zero economy.”
The minimum expectation is that Alliance members set targets in three parts.
According to the protocol, the asset classes that should be included in the 2025 sub-portfolio targets are corporate bonds, equities and real estate, covering underlying holdings’ Scopes 1 and 2 emissions. This is the level at which the targets within the -16% to -29% GHG reduction are to apply.
The protocol states that Scope 3 emissions data are currently not consistent enough to be used for target-setting, but Alliance members who believed they could set targets on Scope 3 were encouraged to do so.
On key metrics for corporate bond and listed equity targets, the Alliance said the use of a total carbon emissions approach but that the current protocol accepted intensity-based targets.
For sector and engagement targets, Alliance members are to start with the highest emitting sectors, starting with oil and gas, utilities, transport (civil aviation, shipping and road transport), and steel.
“Financing transition” targets are targets covering Alliance member action “to grow the supply-side of net-zero solutions”, with the focus to be on “enlarging the scale, pace and geographic reach of net-zero compatible technologies”.
The Net-Zero Asset Owner Alliance has grown from a group of 12 to 30, with BT Pension Scheme, the UK’s largest corporate pension scheme, the latest to come on board.
According to the target-setting protocol, the Alliance has a goal to achieve a minimum of 200 members or $25trn in assets under management across the group “in the mid-term”.
A growing number of financial institutions are making commitments to set Paris-aligned portfolio targets, although not all join thte UN-convened Alliance. IFM Investors, the pension fund-owned Australian fund manager, today announced it was committing to GHG emission reductions across its asset classes targeting net-zero by 2050.
The Net-Zero Asset Alliance said that, with its protocol, it was seeking “to contribute to the next phase of target-setting by global investors”.
Pension fund members of the Alliance include Alecta, PensionDanmark, the Church of England, ERAFP, MP Pension, Danica Pension, and the United Nations Joint Staff Pension Fund.
The draft target-setting protocol can be found here.
Looking for IPE’s latest magazine? Read the digital edition here.
- Climate change
- energy transition
- Institutional Investors Group on Climate Change (IIGCC)
- Investor Strategy
- Net-Zero Asset Owner Alliance
- Paris Agreement
- Paris Aligned Investment Initiative
- Pension Fund Strategy
- Principles for Responsible Investment (PRI)
- UNEP Finance Initiative (UNEP FI)