The $5.1trn Net-Zero Asset Owner Alliance has released rules on how investors should calculate and set targets on climate in their portfolios, and allocate capital to support decarbonisation.
The Inaugural 2025 Target Setting Protocol, which comes on the back of a two month public consultation, includes a 16-29% target range for asset class-level emissions reductions by 2025, in line with Intergovernmental Panel on Climate Change scenarios.
As well as being asked to set Net Zero targets for their Scope 1 and 2 emissions, asset owners are also expected to address their Scope 3 emissions under the new guidelines, meaning the emissions they finance through their investments.
“The Alliance further recommends that members set targets on Scope 1 and 2 emissions for their underlying holdings and on Scope 3 of underlying holdings for ‘priority sectors’ when possible as detailed in the chapter on sector-level targets,” the UN-backed group said in a statement. “At the portfolio level, Alliance members should track Scope 3 emissions, but are not yet expected to set targets until data becomes more reliable.”
‘Issuing transparent, rigorous and realistic targets, and then committing to report against them in the next four years, is at once an extraordinary – and also essential’ – Christiana Figueres
The guidance will inform individual commitments and targets from the Alliance’s members, who include Allianz, Caisse des Dépôts, La Caisse de dépôt et placement du Québec, Folksam Group, PensionDanmark and Swiss Re. Those targets are expected to start being published this year.
The Net-Zero Asset Owner Alliance is convened by the UN Environment Finance Initiative and the Principles for Responsible Investment, with support from Global Optimism and the WWF’s Finance Practice.
The Alliance has recommended a four-part strategy to help members achieve real-economy impacts on climate change – a growing priority for the investment community. The strategy covers engagement, portfolio decarbonisation targets, sectoral targets and climate positive investments.
“Issuing transparent, rigorous and realistic targets, and then committing to report against them in the next four years, is at once an extraordinary – and also essential – demonstration of ambition by private sector leaders who exist at the pinnacle of our financial systems,” said former UNFCCC Executive Secretary and Founding Partner of Global Optimism, Christiana Figueres in her foreword to the new Protocol.
The document also lays down three priorities for investors engaging with policymakers on climate:
- Getting governments and rulemakers to integrate Net Zero by 2050 goals into Covid recovery plans, Nationally Determined Contributions and national emission reduction plans
- The creation of sector policies to promote an accelerated energy transition; and
- Promoting mandatory climate reporting regimes for companies and requirements for business transition plans
The International Energy Agency also announced this week that it will publish what it claims is the first comprehensive roadmap for the energy sector to reach net-zero by 2050, ahead of COP26 in November. The World’s Roadmap to Net Zero by 2050, will be published in May, setting out what is needed from governments, companies, investors, and citizens to fully decarbonise the energy sector and put emissions on a path in line with a temperature rise of 1.5 degrees Celsius.
In addition, Aviva Investors published a 2040 net zero pathway for its £47.3bn Real Assets platform as part of its Better Buildings Partnership Climate Change Commitment this week. To ensure its commitments are met, Aviva, which is a member of the Alliance, has announced five short-term interim goals – one of which is to invest £2.5bn in low-carbon and renewable energy infrastructure and buildings.
Moving forward, the Alliance will publish an annual qualitative progress report and a more detailed report on quantitative achievements every five years. Members will also be required to publish interim targets every five years.
The group is seeking to hit 200 members, or $25trn in assets under management, over the “mid-term”.
Günther Thallinger, Alliance Chair and Member of the Board of Management Allianz SE, said: “Investors and companies across the globe must follow by publishing their own rigorous, science-based and accountable targets. Business needs to become sustainable, actually capitalism needs to become sustainable. By changing investment decision-making and including climate neutrality as a shorter-term objective, asset owners are making a big contribution”.