Asset Owners Feel Strain of Net Zero Alliance Overlaps

Institutional investors weigh up “competing” net zero initiative commitments. 

Asset owners straddling multiple net zero frameworks are concerned about the resource strain in the long-term, as decarbonisation progress ramps up on the path to 2050.  

Denmark’s Lægernes Pension, a pension fund for medical doctors with US$14 billion in assets, is a member of both the Net Zero Asset Owner Alliance (NZAOA) and the Paris Aligned Asset Owners. 

Peter Rasmussen, the pension’s Head of Responsible Investments, told ESG Investor that Lægernes is “fully committed” to aligning its investments with net zero, and that both initiatives “serve as valuable input on how to implement these goals into our investment strategy”. 

“However, given the increasing regulatory requirements, as well as public scrutiny, having two competing – and to some extent overlapping – standards could lead to confusion rather than creating clarity on how we and other investors integrate the Paris Agreement into our investments.

“We are aware of that risk, especially as the field matures,” he said.  

Lægernes Pension is therefore “considering whether it is appropriate to abide by both [initiatives] in the long run”, according to Rasmussen.  

This follows the Church of England Pensions Board’s (CoEPB) exit from NZAOA earlier this month. The CoEPB has £3.2 billion (US$4.1 billion) in assets.  

Laura Hillis, the CoEPB’s Director of Climate and Environment, said that the pensions board is also an active founding member of the Net Zero Investment Framework (NZIF) and continues to co-chair the Paris Aligned Asset Owners Steering Committee. 

“Given the size of the organisation, a clear focus on one initiative was needed,” she said.  

The CoEPB will continue to collaborate with the NZAOA on engagement topics and will stay in close contact, Hillis added, further noting that the CoE’s endowment fund (US$10.3billion in assets) – managed by the Church Commissioners for England – will remain part of the NZAOA.   

The CoEPB’s Chief Responsible Investment Officer Adam Matthews said on LinkedIn that the pension board’s decision “is in no way a criticism of the NZAOA initiative, but trying to ride two horses for a fund of our size didn’t make sense”.  

BT Pension Scheme (BT PS), which is a member of both the NZAOA and the Paris Aligned Asset Owners, told ESG Investor that it keeps all the scheme’s net zero initiative commitments under review but currently has no changes planned.  

The NZAOA is made up of over 80 members with US$11 trillion in assets that are required to commit to at least halve their portfolio emissions by 2030, cutting emissions by between 49-65% from a 2020 baseline. They must also decarbonise portfolio emissions by 22-32% between 2020-25. 

Led by the Institutional Investors Group on Climate Change (IIGCC), the Paris Aligned Asset Owners is an international group of asset owners that have committed to supporting net zero by 2050 or sooner. It is an outcome of the Paris Aligned Investment Initiative, which was launched in 2019 as a collaborative investor-led forum to aid investors aligning their portfolios and investment activities with the goals of the Paris Agreement. 

In 2021, the IIGCC also launched the NZIF, which outlines guidance for how investors can ensure their investment portfolios are aligned with net zero across a variety of asset classes, including listed equities, corporate fixed income, sovereign bonds, real estate and private equity.  

“Coherence and consistency”  

A spokesperson for the NZAOA said that the alliance and the Paris Aligned Investment Initiative are investor-led platforms that cater for investors in “different but complementary ways”. 

“They are ultimately driving towards the same goal, transitioning investment portfolios to net zero greenhouse gas (GHG) emissions by 2050 – consistent with a maximum temperature rise of 1.5°C.” 

The spokesperson said the alliance is “keen to collaborate” with other platforms to “identify opportunities for greater alignment to ensure the greatest possible coherence and consistency”.  

The NZAOA is currently working on closer alignment of its members’ annual reporting on decarbonisation progress with the UN-convened Principles for Responsible Investment’s existing reporting standards for members.  

Mahesh Roy, Investor Practices Programme Director at the IIGCC said that a number of NZAOA signatories are also IIGCC members and actively participate in working groups to further develop the NZIF and associated frameworks, such as the Net Zero Stewardship Toolkit.  

“Given that many signatories of the NZAOA are also IIGCC members, we are in contact with those developing the [NZAOA] Target Setting Protocol and hope to align on common areas of agreement for the NZIF where possible,” said Roy. 

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