The Net-Zero Asset Owner Alliance has come up with more details on how investors should get their investments to shrink greenhouse gas (GHG) emissions – this time including more on sovereign debt, and addressing private assets and commercial property loans for the first time.
The 75-member alliance, which was convened by the UN, yesterday launched a public consultation on the third version of its Target Setting Protocol (TSP).
The protocol is a collaborative work devised in phases outlining the methodologies members use to develop intermediate climate targets.
It is expanded and improved annually to increase portfolio coverage, the alliance said.
The draft now out for consultation until the end of October is of the third edition of the TSP, and introduces an emission reporting framework for sovereign debt accounting; overarching principles for target setting in private assets – as well as carbon accounting for direct commercial real estate mortgage loans.
“The Alliance launches this public consultation to gather views and perspectives on the approaches it has so far considered and endorsed,” it said in a statement, adding that the consultation would inform the final version of the protocol – the alliance’s guiding document on target setting.
Though sovereign debt was addressed in the second version of the TSP in terms of accounting approach, it is only in the new draft that an emission reporting framework for the government bonds has been included.
The alliance said the final stage of development for sovereign debt in the protocol was the target-setting approach, and that it envisioned collaborating with a range of partners – for example the Science Based Targets initiative – in developing this.
The draft third version is the first time that private equity has been addressed, as well as mortgages.
According to the asset inclusion timetable set out in the second version, which was published in January 2022, the debt of sub-sovereigns, agencies, and supra-national debt; unlisted (private) corporate debt; covered bonds – and other assets – are to be included in subsequent versions of the protocol “as methodologies and data availability develop”.
Progress on high-emitters’ commitments “not matched by strategies”
Separately, Climate Action 100+ – which describes itself as the world’s largest investor engagement initiative on climate change – has updated its assessments of how high-emitting companies are progressing regarding climate goals, and concluded that progress on net-zero commitments is not being matched by development and implementation of credible decarbonisation strategies.
The initiative said it was launching an interim set of net zero company benchmark assessments, with 159 companies on its focus list having been measured on how far down the road they are with the initiative’s three engagement goals and a set of key indicators related to business alignment with the Paris goals.
The 700 investors behind Climate Action 100+ concentrate on 166 of the world’s biggest corporate GHG emitters.
Stephanie Pfeifer, chief executive officer of the Institutional Investors Group on Climate Change and a member of the Climate Action 100+ global steering committee, said: “Looking back over the last five years of Climate Action 100+ there has been demonstrable progress, particularly in Europe, by some of the world’s largest carbon emitting companies in acting on climate change; in this regard Climate Action 100+ has clearly been a force for good.
“However, we must be under no illusion about the need for more urgent action by all companies and impactful corporate engagement by investors to support global efforts to limit the temperature rise to 1.5°C. The challenge – and opportunity – for phase two of the initiative is clear,” she said.
Climate 100+ said that while focus companies were incrementally improving disclosures under the disclosure framework, the latest alignment assessments – which measure implementation of Paris-aligned corporate actions – suggested their real-world activities did “not yet demonstrate any meaningful shifts in business models at some companies to align with the Paris Agreement”.
For example, it said, less than a third of electric utility focus companies had a coal phaseout plan consistent with limiting global warming to below 2°C, and just 10% of focus companies had broad alignment between their direct climate policy engagement activities and the Paris Agreement.
“However, for the first time, a small number of focus companies provided sensitivities to achieving net zero emissions by 2050 (or sooner), as assessed by CTI’s climate accounting and audit indicator,” it said.
Although a minority, Climate 100+ said that was a significant step in the right direction in assessing climate change as a material risk.
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