A group of pension funds and investment firms that manage a combined $5 trillion of assets and pledged last year to erase the carbon footprint of their investments have made their first detailed plan for how they'll achieve that goal.
The Net-Zero Asset Owner Alliance, which was convened by the United Nations and counts Allianz and the $410 billion California Public Employees' Retirement System, Sacramento, among its members, announced portfolio decarbonization targets Tuesday in line with limiting the global temperature increase to 1.5-degree centigrade above pre-industrial levels. The Alliance said in a statement its members will reduce the emissions of their equity, corporate bond and real estate investments by 16% to 29% by 2025 from 2019 levels.
Member firms currently have varying levels of carbon emissions contained within their portfolios and will set individual reductions targets in the first quarter, according to the statement.
The goal only covers direct emissions and those from the generation of energy the company buys, so-called Scope 1 and Scope 2 emissions. The Alliance's members should track Scope 3 emissions, which result from customers using portfolio companies' products, but they aren't required to set targets until the data become more reliable.
"Reaching net zero isn't simply reducing emissions and carrying on with the business models of today," Gunther Thallinger, the Alliance's chair and a management board member at Allianz, said in the statement. "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 30 pension funds and insurance companies that make up the group have committed to transition their investment portfolios to net‐zero greenhouse gas emissions by 2050 and to achieve that by engaging with companies and governments on moving toward a low‐carbon future that doesn't penalize the most vulnerable in society.
While the asset owners could quickly decarbonize their portfolios by divesting of their holdings in fossil fuel companies, "it is highly questionable if such actions alone would have a positive impact on the real economy," the Alliance said.
The Alliance also Tuesday published a public consultation for its 2025 Target Setting Protocol, which details its plans for "this substantial decoupling of asset owners' portfolio greenhouse gas emissions from the global economy."