Policymakers should set a legally binding, long-term carbon pricing corridor in line with best available science for what is required to keep global temperature levels from exceeding 1.5°C above pre-industrial levels, according to the UN-backed Net Zero Asset Owner Alliance (AOA).

The recommendation is set out in a discussion paper that was published today in anticipation of a G20 climate summit in Venice next week. Representatives of the net-zero asset owner group intend to raise their proposals at the summit.

Publication of the paper comes as the Net Zero Asset Managers initiative announced a further 41 signatories. (See below)

In its paper, the Net-Zero Asset Owner Alliance calls on governments to set net-zero targets and back these with “fit-for-purpose” carbon-pricing instruments, saying that this will facilitate a cost-efficient and transparent investment path to reach net-zero.

“Without it, market incentives will remain insufficient to allocate capital in line with a 1.5°C of warming scenario,” the Alliance said.

According to the asset owner group, the “predictable and robust nature of the hybrid carbon price corridor design provides companies and investors with greater certainty of future price levels for efficient capital allocation”.

“It also creates stable and reliable incentives for entrepreneurs, consumers, and other stakeholders to adopt or develop low or zero-emission technology.”

Other recommendations included in the report include that carbon-pricing be made non-regressive and revenue-neutral, and that emission reductions be frontloaded.

The Alliance also emphasised that carbon pricing needed to be complemented by additional policy measures – “and vice versa”.

“The principles we lay out in the discussion paper seek to accelerate policy and regulatory improvements towards a just transition”

Günther Thallinger, member of the board of management Allianz SE and chair of the Net-Zero Asset Owner Alliance

These measures are needed to support public spending on research and development, and on the creation of government accelerator programmes, according to the report.

“The principles we lay out in the discussion paper seek to accelerate policy and regulatory improvements towards a just transition,” said Günther Thallinger, member of the board of management Allianz SE and chair of the Net-Zero Asset Owner Alliance.

“Non-regressive and revenue-neutral carbon-pricing instruments – harmonised across borders – will not only unleash massive investment in renewable power systems globally, but boost sectors from construction to transport, which are in urgent need of transition.”

Charles Emond, president and CEO of Caisse de dépôt et placement du Québec, added: “Massive investments are required across industries to reduce carbon emissions. This is particularly true for the production of the building blocks of a greener economy such as chemicals, metals or cement, which are highly carbon intensive.

“A carbon price corridor that provides a clear economic signal as well as more pre-visibility will provide the global environment necessary for companies to make sound investments decisions and for investors to support them in the decarbonisation of the real economy.”

‘Tipping point’ after new Net Zero Asset Manager wave

Amundi, Franklin Templeton, and HSBC Asset Management are among the 41 asset managers that have become the latest signatories in the Net Zero Asset Managers initiative, which has now grown to count 128 investors since launching in December.

The latest signatories take the initiative close to representing almost half of the entire asset management sector globally in terms of total funds managed, taking a $100trn figure from Willis Towers Watson research.

Stephanie Pfeifer, CEO of the Institutional Investors Group on Climate Change, one of the investor networks behind the initiative, said this “marks a fundamental tipping point across the investment sector and a significant boost in efforts to tackle climate change and decarbonise the global economy”.

“There’s a lot more to achieve, but the sector is increasingly on a path to a net zero future,” she said.

In signing up to the initiative, asset managers’ commitments include to create investment products aligned with net zero emissions and facilitate increased investment in climate solutions, and put in place a stewardship and engagement strategy, with a clear escalation and voting policy, consistent with net zero emissions by 2050. 

The full list of signatories can be seen here.

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