The Net Zero Asset Owner Alliance (AOA), the UN-backed investor group representing $11 trillion in assets, has barred the use of “carbon removal” in the latest edition of its target-setting protocol.
Published on Tuesday, the third edition of the protocol sets out a pathway for the AOA’s 84 members – which includes the likes of CalPERS, CDPQ and Aviva – to reduce their emissions.
Based on the Intergovernmental Panel on Climate Change’s (IPCC) most recent pathways, the AOA stated that its members would aim to reduce emissions linked to their investments by 22-32 percent by 2025 and 40-60 percent by 2030.
AOA’s stance on carbon removals was outlined in its The Net in Net Zero position paper, published in 2021.
That has now been incorporated into this protocol, which states that members “shall not use carbon removals for their own sub-portfolio or sector target achievement at this time or at any time before 2030 (when this protocol comes to term)”.
A spokesperson for the AOA told Responsible Investor that, for both sub-portfolio and sector targets, members will have to reduce emission levels – according to the ranges derived from science-based 1.5C pathways – through abatement alone.
Members are “encouraged to contribute to a liquid and well-regulated carbon removal certificate market as well invest in CDR [carbon dioxide removal] and negative emissions technologies”, the spokesperson added. “However, these actions do not count towards meeting their climate targets.”
The updated methodology has been expanded to include reporting on sovereign debt and target setting for direct private equity investments, including commercial real estate lending.
It also incorporates the notion of a Just Transition, although not as a “dedicated track”. The AOA spokesperson told RI that this is due to “internal time and expertise restraint”.
Sovereign alignment
On sovereign debt, the AOA is collaborating with the industry-led carbon accounting body PCAF and the asset owner-backed Assessing Sovereign Climate-related Opportunities and Risks (ASCOR), respectively, to develop the accounting and assessment standards.
ASCOR is a collaboration between asset owners BTPS, the Church of England Pensions Board and big groups such as the AOA and the PRI. Its draft framework will be put out for consultation on 7 February.
Once finalised, the ASCOR assessment tool will be available “for Alliance members to utilise in assessment of a sovereign’s alignment with no or limited 1.5C pathways”, the AOA stated.
Under the new protocol, AOA members will be required to internally track “and where possible publish” carbon data for sovereigns’ carbon accounting by end-2023 and report to the alliance by end-2024.
Targets for sovereign debt have yet to be developed by the AOA and will be the topic of further consultation.
The latest protocol also keeps the warning from the second, published last year, that the AOA may need to “tolerate a ‘buffer’ or slight lag behind the scientific pathways” among its members, given that their achievement of decarbonisation goals is dependent on the collective movement of governments and policymakers, as well as companies.
“We are observing a divergence of real-economy emission pathways and scientific pathways for limiting temperature rise to 1.5C,” said Günther Thallinger, board member at Allianz SE and AOA chair. “With this protocol the alliance increases expectations for its members and calls on policymakers and corporates to move in line with science.”
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