Posted inESG

$5trn net-zero GHG investors set decarbonisation target

One arrow of many hitting the center of the target

A group of 30 investors with $5trn (€4.26trn) of assets under management has agreed concrete targets to decarbonise their portfolios according to a 1.5°C warming scenario for the next five years.

The members of the UN-convened Net-Zero Asset Owner Alliance, which was initiated by a group of pension funds and insurers, has already committed to transition their investment portfolios to net-zero greenhouse gas emissions (GHG) by 2050.

In the first quarter of 2021, individual members will set their own portfolio targets, each with different starting points to take into account the level of carbon emissions currently contained within their portfolios.

By 2025 (from 2019), they will implement deep GHG emissions reductions in the 16% to 29% range amid likely rising global emissions in the same period.

Günther Thallinger, member of the board of management at Allianz SE and chair of the net-zero initiative, said: “Reaching net-zero is not simply reducing emissions and carrying on with the business models of today. 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.”

The 2025 Target Setting Protocol, currently published for public consultation by the Principles for Responsible Investment (PRI) and UNEP FI, lays out plans for this substantial decoupling of the investment portfolios’ GHG emissions from the global economy.

The Protocol will allow Alliance members to employ a combination of approaches that best supports their unique decarbonisation and engagement strategies for the different carbon levels in their portfolios.

UNEP FI commented: “The Protocol is integral to coherent and comprehensive plans to reduce emissions, increase investment in the net-zero emissions transition and enhance influence on markets and government policies.

“[But] in order for their efforts to be met with success, substantial government action is required.”

Loud signal

Engagement with portfolio companies is a core component to assure the net-zero transition in the real economy.

“With this Protocol, Alliance members are sounding a very loud signal to the thousands of companies they own that deep emissions cuts are required. They will work with those willing to adjust their business models, and do not wish to engage in a divestment exercise,” UNEP FI explained.

The Alliance members aim to have transparent and unique targets that suit their institutions. They will be aggregated to track and report progress for individual members and for the Alliance as a whole transparently.

Eric Usher, head of UNEP FI, said: “According to the UNEP Emissions Gap Report, every year of postponed emissions peak means that deeper and faster cuts will be required. The Target-Setting Protocol represents world-leading progress on the required emissions reductions from some of the biggest investors in the world.”

Fiona Reynolds, chief executive of the PRI, said: “Establishing firm interim portfolio decarbonisation targets is key to meeting the Paris climate commitments.

“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, a joint initiative of the PRI and UNEP FI, can have a huge impact on the way companies manage the carbon footprint of their operations.”

The Alliance 2025 Target Setting Protocol is open for public comment from 13 October 2020 to 13 November 2020.

Elena Johansson

Senior Reporter

Part of the Bonhill Group.