The Net-Zero Asset Owner Alliance (Alliance) has stayed firm on its 1.5-degree goal for its members’ portfolios in its protocol, even though the decarbonisation of the real economy has been lagging.
Under the fourth edition of the Target-Setting Protocol, all 89 institutional investors of the UN-convened Alliance, with over $9.5trn of assets under management, are required to set the next round of five-year targets from 2025-2030. The members shall target 40 to 60% greenhouse gas emissions reductions by 2030, according to the Target-Setting Protocol.
When looking at the most recent reporting of the Alliance, it shows a decrease of absolute financed emissions. In 2022, these emissions fell to a total of 213.4 million tonnes of carbon dioxide equivalent from 221.2 million in 2021 despite further growth in membership.
The latest guidance demonstrates that its members remain committed to achieving net-zero greenhouse gas emissions of their portfolios by 2050, aligning with a 1.5°C pathway with no or limited overshoot.
Günther Thallinger, Board Member Allianz SE and Alliance Chair, commented that the “unanimous endorsement [of the protocol] underscores the strong commitment of all members to implement their net-zero targets in line with sound science”.
“But we must close the widening gap between our ambitions and the real economy, which is lagging behind science,” he added.
Compared to the previous edition covering the period 2020-2025, the updated protocol has a reformulated theory of change, which is provided in a supplementary document, and includes additional private assets as well as a new methodology to assess sovereign portfolios.
Theory of Change
In its Theory of Change, the Alliance explains that for asset owners to influence incentive shifts and contribute to a net-zero transition, three main points of action are necessary – capital allocation strategies, engagement approaches and so-called ‘field building’.
Jesica Andrews, Head of Climate Accountability at UNEP FI, explained: “Transitioning the global economy will require complex changes by many actors, and the Alliance believes that these three levers, [capital allocation strategies, engagement approaches, and field building], are the most important ones for asset owners.
“Thus, while allocation strategies are critical, it’s also important to engage corporates, asset managers, and policymakers as well as work with others on ‘field building’ – creating the methodologies, standards, norms and best practices so that across the finance industry, related policy, and in the corporate sector, all relevant stakeholder are pushing in the same direction.”
The protocol states that it allows members to employ the combination of approaches that best supports their unique decarbonisation and engagement strategies and fulfils their fiduciary duty.
Private assets and sovereign debt assessment
It expands the coverage of targets to main private asset segments.
This ensures a harmonised approach to listed and non-listed ownership structures, as even brown assets in private markets can be scrutinised through companies’ transition plans, the press release of the Alliance says.
The members also seek to gain a holistic understanding of the climate alignment of their sovereign debt holdings.
By using a scorecard, which relies on the Assessing Sovereign Climate-related Opportunities and Risks (ASCOR) database and framework, asset owners can assess governments’ climate-related commitments, climate-relevant policy frameworks and support for a just transition.
Andrews said: “By issuing its protocol, the Alliance contributes to the latest methodologies for setting targets. The lead authors engage with other initiatives and policymakers in order to continue to improve Alliance’s own methodologies as well as to seek convergence with others. Lastly, the Alliance continues to engage with policymakers on best practices for disclosure, methodologies and transition planning.”
The fourth edition of the Alliance’s Target-Setting Protocol is available here. The supplementary background document including the theory of change is available here.