Institutional investors managing $5tr pledge 2025 portfolio CO2 goals

Institutional investors collectively managing $5tr of assets have today agreed to set 2025 portfolio decarbonisation targets aligned with global climate goals, in a move designed to spur near-term climate action at the firms they support.

Members of the Net Zero Asset Owner Alliance, which includes Allianz, Church of England, Aviva, AXA, and the BT Pension Fund, have collectively pledged to achieve emission reductions across their portfolios of between 16 per cent and 29 per cent by 2025 compared to a 2019 baseline.

Under the plan, dubbed the 2025 Target Setting Protocol, coalition members must set their own portfolio targets within the prescribed range in the first quarter of next year.

Companies further ahead in the decarbonisation process are expected to set higher targets whereas targets at the lower edge of the range are expected from investors' facing more complex geographic or policy constraints.

The hope is that the commitment will build on institutional investors' commitment to deliver net zero emissions by 2050 and catalyse the decarbonisation of investors' portfolio companies in the nearer-term.

Engagement with corporates to encourage them to develop their own decarbonisation strategies is a "core component" of the initiative, according to its convenors, the United Nations Environment Programme Finance Initiative (UNEP FI) and Principles for Responsible Investment (PRI).

"Although decarbonisaton of portfolios could be easily achieved by selling carbon intensive investments, it is highly questionable if such actions alone would have a positive impact on the real economy," they said, adding that a divestment strategy could undermine Alliance members' ability to engage with high-emitting corporates.

"Reaching net zero is not simply reducing emissions and carrying on with the business models of today," said Gunther Thallinger, Allianz alliance chair and member of the board of management. "There are profound changes and opportunities that will come from the net zero economy, we see new business opportunities and strong wins for those who are ready to lead," he adds.

Fiona Reynolds emphasized "firm" interim portfolio decarbonisaton targets were "key" to meeting the Paris Agreement climate goals. "From a membership of 12 asset owners at launch over a year ago, to 30 and counting means the UN-convened Net Zero Asset Owner Alliance can have a huge impact on the way companies manage the carbon footprint of their operations," she said.

Meanwhile, Eric Usher, head of UNEP FI, touted the new protocol as "world-leading progress on the required emissions reductions from some of the biggest investors in the world".

The Net Zero Asset Owner Alliance is part of the United Nations Framework Convention on Climate Change's (UNFCCC's) Race to Zero campaign, a global push by companies, cities, and investors to expand the community of organisations that have publicly committed to achieving net zero carbon emissions by 2050 at the latest in the run up to next year's COP26 Climate Summit.

Today's annoucement is the latest in a wave of moves from major institutional investors designed to encourage policymakers and business leaders to step up their climate ambition. Just last week, investors representing £5tr of assets called on the British government to launch its first ever green bond to stimulate the green economy in the wake of the coronvairus crisis.

And in related news, the Green Finance Institute chief executive Dr Rhian-Mari Thomas has this week been appointed as one of three co-chairs of the Informal Working Group of the Task Force for Nature-related Financial Disclosures (TNFD), alongside Antoine Sire, director of company engagement and member of the group executive committee at BNP Paribas and Mariuz Calvet Roquero, director of sustainability and responsible investment at Banorte.

The Informal Working Group, which brings together governments, investors, regulatory bodies, banks and think tanks, is tasked with establishing a detailed work plan for the TNFD, ahead of the official launch of the project in the first half of 2021. The taskforce will then spend two years designing a new reporting framework that allows businesses and financial institutions to assess their interdependece on the natural environment. 

 

The Net Zero Investment Hub is brought to you in partnership with Schroders, as part of its support for the world's first Net Zero Festival this autumn. All the content on the Hub is fully editorially independent unless otherwise stated.

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