Members of the United Nations-convened Net-Zero Asset Owner Alliance are ramping up the scope and expectations for achieving net-zero targets, according to the latest edition of their target-setting protocol released Tuesday.
The Net-Zero Asset Owner Alliance is a member-led initiative of 84 institutional investors with a collective $11 trillion in assets, all committed to net-zero greenhouse gas emissions in their investment portfolios by 2050. Its members include some of the world's largest owners.
The third and latest edition of the protocol for asset owners now includes targets on private assets and ways to report on sovereign bonds.
In the absence of readily available data on unlisted equity, the updated protocol offers a methodology for assessing direct private equity investments. It also requires Alliance members to start setting targets this year and to have them apply to all new private equity assets by 2025.
In 2023, Alliance members are also being asked to begin setting targets on new commercial real estate loans using one of two methodologies, and to start reporting next year on how those goals are included in portfolios.
The 2023 protocol also offers the first guidance on carbon accounting for sovereign debt, "a significant asset class for many asset owners," the release said. The Alliance collaborated with two organizations — the Partnership for Carbon Accounting Financials and ASCOR (Assessing Sovereign Climate-related Opportunities and Risks) to develop accounting and assessment standards that once finalized are expected to offer "a common understanding of sovereign exposure and climate alignment," the release said.
The latest protocol also incorporates principles on just transition. Alliance members are required to consider societal impacts as they steer portfolios towards net-zero economy alignment, to ensure the low carbon transition is widely and fairly shared, and they are encouraged to focus on emerging markets, typically more vulnerable to climate change with fewer resources, the Alliance said.
Günther Thallinger, chairman of the Alliance steering committee and a board member of Allianz SE, said in a statement on the protocol that working towards net zero is possible and "is a matter to decide to do so," as the world diverges between real-economy emission pathways and scientific pathways for limiting temperature rise.
"With this protocol the Alliance increases expectations for its members and calls on policymakers and corporates to move in line with science," Mr. Thallinger said.