Institutional investors holding a combined $9.5 trillion of assets say they’ve slashed portfolio emissions at a rate that aligns them with the goal of limiting global warming to the critical threshold of 1.5C.
The Net-Zero Asset Owner Alliance, whose signatories include Allianz and the $519.9 billion California Public Employees’ Retirement System, Sacramento, said in a statement on Sept. 25 that reduction in greenhouse gas emissions registered by its 88 members was at least 6% on average, annually, since 2018. At that rate, the group will be able to meet the target enshrined in the Paris climate agreement of hitting net zero emissions by mid-century.
If others follow the example set by the alliance, “it would change the cost of capital for companies who weren’t acting fast enough,” said Jesica Andrews, who leads the investment practice at the United Nations Environment Programme Finance Initiative, which is the U.N. unit that convened the asset-owner alliance.
Tackling portfolio emissions has proved a highly complex issue for financiers seeking to deliver on climate commitments. Some question the value of targeting a net-zero portfolio when the rest of the world is on course for catastrophic levels of warming. The distinction between portfolio decarbonization and real-economy decarbonization has fueled a debate in the broader finance industry as a number of major investment managers declare such goals to be unrealistic.
NZAOA, a coalition of pension funds and insurance companies that was created half a decade ago, didn’t provide a breakdown of emissions reductions for each member, though a separate progress report is due in October. Last year, the group said asset owners employ several different strategies to decarbonize their investment portfolios, including reallocating capital toward green companies and selecting the best carbon performers in high-emitting sectors.
Remco Fischer, climate lead at UNEP FI, says the progress made by the NZAOA is “reason for celebration.” That’s because it “sends a strong signal” that emissions reductions are possible and there’s a contingent of investors working to deliver it.
“There’s no one given actor that can solve climate change for humanity,” Fischer said in an interview. “What all of society and the economy can do is to figure out what is our part in it. This group of investors, they’re doing their part in achieving the Paris Agreement, and if everyone was doing the same we would actually be making progress.”
That said, the private sector can only go so far without ambitious emissions-cutting goals from governments, Fischer said. For that reason, the NZAOA is calling for “urgent action from policymakers to accelerate action to address climate change and facilitate the unlocking of capital for a just transition to net zero,” according to the Sept. 25 statement.
“The cost of inaction remains far higher than the investments needed for a complete transformation,” Günther Thallinger, NZAOA’s chair, said in a statement. “A transformed economy will be cheaper, healthier, more stable and more secure than what we have today. That’s why we are vocal in urging governments to act pressingly and decisively to enable a policy environment conducive with 1.5C pathways.”
The Net-Zero Asset Owner Alliance is a sub-unit of the Glasgow Financial Alliance for Net Zero, which is co-chaired by Mark Carney, the chair of Bloomberg and a former Bank of England governor, and Michael R. Bloomberg, the founder of Bloomberg News parent Bloomberg. Members of the group have committed to individually transition their investment portfolios to net-zero greenhouse gas emissions by 2050 and set intermediate decarbonization targets every five years.
