NZAOA Members Decarbonising Ahead of Schedule

Alliance momentum builds, but admits to room for improvement on sector-based targets.

Global institutional investors managing US4.6 trillion in assets have committed to reducing their portfolio greenhouse gas (GHG) emissions by 25-30% by 2025.

Twenty-nine members of the UN-convened Net Zero Asset Owners Alliance (NZAOA), including Allianz, Caisse de dépôt et placement du Québec (CDPQ) and Swiss Re, plan to achieve deeper emissions cuts than a protocol published in January, which committed members to a 16-29% reduction across listed equity, corporate bonds and real estate by 2025.

The NZAOA’s first ‘Alliance Progress Report’, published today, has outlined that US$1.5 trillion in assets under management is now “in motion towards a 1.5°C aligned target by 2025”. However, there is room for improvement, the report noted.

Sector-specific corporate decarbonisation targets for hard-to-abate industries have only been set by a small number of asset owners, the report said. These sectors include: oil and gas; utilities; steel; transportation; shipping; and aviation.

Only three asset owners set oil and gas sector targets, two set either oil and gas or utilities targets and only one asset owner set targets for the steel sector.

“The Alliance is aware that presently few sector-specific targets have been set and that over time more sector-specific targets should be established. The Alliance is working to address gaps in data that currently provide barriers to sector-specific target setting,” the report said.

Sector-specific targets should require detailed information on carbon output and production KPIs, the NZAOA added, and disclosure of Scope 3 emissions “wherever possible”.

“We want to signal that we are ready to work on the development of assets. We are willing to bring sustainability targets at the level of financial targets and are ready to work on the long-term transformation of the economy. We also want to show that we are prepared to lead the way by first changing ourselves and then to reach out to others to join us,” said Günther Thallinger, Allianz Board Member and NZAOA Chair.

Growing momentum

Over the course of two years, the NZAOA has grown from 12 members to 56, now collectively managing US$9.3 trillion in assets. New members include Nippon Life, Pensioenfonds Detailhandel and SparkassenVersicherung. It claims to be on track to reach US$10 trillion AUM by COP26, due to be held in the first week of November.

New NZAOA members now have 12 months to set their interim targets, either in line with the original 16%-29% range or the more ambitious 25%-30% by 2025.

Last month, the NZAOA also published a position paper encouraging asset owners to invest in carbon dioxide removal (CDR) and negative emissions solutions, in order for them to be more rapidly adopted at scale to accelerate the transition to net-zero.

As part of NZAOA’s Financing Transition track, members must report progress in the amount of financing they have provided to such climate solutions. The new progress report noted that asset owners are currently dedicating an average 4% of their AUM to CDR and negative emissions solutions.

In July, the NZAOA published a discussion paper calling on governments to back members’ net-zero carbon emission reduction targets with robust and fit-for-purpose carbon pricing instruments.

Current carbon prices need to almost treble by 2030 to achieve net zero, according to the report.

Members have also previously called on global asset managers to provide and scale-up blended finance solutions and to represent climate risk not just as a financial risk, but an existential one.

The NZAOA is conducting a public consultation on its target-setting protocol, which aims to add additional asset classes to members’ decarbonisation targets: infrastructure and sovereign debt. The consultation closes on 29 October.

“As COP26 rapidly approaches, increased investor commitment and action in the race to net zero is critical. The release of the NZAOA’s progress report highlights the initiative’s continued growth. Members are not just calling on others to act but are starting to pave the way, by aligning their own portfolios and practices with net zero – including by publishing 2025 interim targets. This focus on near-term goals is vital in driving timely action on net zero and ensuring targets are hit by 2050,” said Fiona Reynolds, CEO of the Principles of Responsible Investment.

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