Dive Brief:
- The United Nations-backed Net-Zero Asset Owner Alliance released an updated target-setting protocol for members Thursday, extending its guidance to cover all private assets and asking members to set 2030 goals in line with the Paris Agreement.
- Members’ 2030 goals, which will cover all their activities from 2025-2030, will require them to cut from 40% to 60% of their greenhouse gas emissions by the end of the decade, compared to a 2019 baseline, according to the release.
- The organization — whose 89 members include the California Public Employees’ Retirement System, Allianz SE and Munich Re — said the updated guidance reaffirms members’ commitment to reaching net-zero emissions targets by 2050 and limiting global temperature rise to 1.5 degrees Celsius “with no or limited overshoot,” in line with the 2015 Paris Climate Accords.
Dive Insight:
The alliance, run by the UN Environment Programme Finance Initiative, said the fourth edition of the target-setting protocols for NZAOA’s members is the first time the framework will cover a majority of asset classes across investment portfolios. The organization said the guidance will be updated no more than once every 12 months. Previous editions of the protocol excluded debt funds, residential mortgage loans and directly held real estate debt funds.
UNEP FI said the move will help increase transparency and lessen the likelihood that increased climate scrutiny could push “some actors” to offload assets from higher-emitting sectors into the “less transparent private market.” UNEP FI said “only a harmonized approach to listed and non-listed ownership structures can mitigate this risk.”
Members will look to collectively halve their emissions by the end of the decade, according to the release. Udo Riese, co-author of every edition of the target-setting protocol, said in a protocol launch webinar Thursday that the organization’s theory of change is that asset owners can influence change through actions in its own portfolio and by engaging with partners, and those actions also influence the broader economy.
“How we act on our portfolios and how we [engage] with our partners is really critical,” Riese, also global head of sustainable investing for Allianz SE, said in the webinar. “This is reflected one-to-one in the target setting protocol: our own actions on our portfolios, but also the outreach to our partners.”
The guidance will also include a pilot year of assessing emissions for sovereign debt holdings. NZAOA will assess member’s sovereign debt portfolios by supplementing its usual carbon accounting with a scorecard from the Assessing Sovereign Climate-related Opportunities and Risks project database.
“UNEP FI recognizes the indispensable contribution of all non-state actors,” Caroline Gresch, head of UNEP FI’s monitoring, reporting and verification working group, said on the webinar. “Actors across the global economy across all industries play a crucial role in executing the transition and complementing the efforts of government[s].”
Günther Thallinger, NZAOA chair and Allianz SE board member, said in the release the updated protocol was approved by the entirety of the membership, which has $9.5 trillion in total assets under management. He added that scaling the transition to a low-carbon economy will require “an enabling policy environment” that supports investors and corporations in making sure the transition aligns with science and takes “due consideration of social impacts.”
“We must close the widening gap between our ambitions and the real economy, which is lagging behind science,” Thallinger said.
The organization also reaffirmed its position that “members shall not use carbon removals” to achieve their own decarbonization targets and should, instead, prioritize reducing emissions. NZAOA first established this guidance in the 2023 edition of the target-setting guidance.
“Members are however encouraged to contribute to a liquid and well-regulated carbon removal certificate market in this period, as well as invest in projects and technologies of durable carbon avoidance and removal, to scale future markets rapidly,” the release said.
The reaffirmation of the position comes a week after the Science Based Targets initiative, another UN-backed global organization advocating for science-aligned net-zero targets, walked back an expansion of environmental offset consideration in its own guidance.
SBTi — which provides guidance and validates companies’ net-zero targets — had initially stated it would allow broader use of environmental attribute certificates, like carbon offsets, in companies’ plans for scope 3 emissions abatement. Backlash from staff at the organization was swift, which led SBTi to issue a clarifying statement before the weekend, where it stepped back from that position and said “no change has been made to SBTi current standards.”
