More than 80 asset owners are managing to decarbonise their portfolios at a rate consistent with the goals of the Paris Agreement.
The Net Zero Asset Owner Alliance (NZAOA) claimed in a report published today that its members have reduced the emissions associated with their investments by at least 6% each year.
“The significance of this report cannot be overstated,” said the UN-backed body.
“The Alliance’s 81 members that have already set their intermediate climate targets have, on average, achieved incremental portfolio decarbonisation that, if replicated in the real economy, would likely lead to limiting global warming to 1.5°C.”
NZAOA has 88 members altogether, 90% of which are either insurers (62%) or pension funds (28%).
Three insurers – CEGC and COFACE from France, and Portugal’s Fidelidade – joined over the past 12 months, while one asset owner, Danish pension fund PKA, exited.
“However, despite further growth in membership in both 2022 and 2023… absolute financed GHG emissions decreased,” the report explained.
“The critical detail here is that all cohorts recorded reductions of at least 6% annually. This rate of reduction is in line with the 1.5°C-aligned pathway requirements.”
The group concedes that the reductions are generally a result of portfolio reallocations – shifting capital to more sustainable investments, rather than retaining investments in companies that are decarbonising.
“The Alliance remains attentive to the fact that the same scale of reductions has not yet taken place in the real economy,” it noted.
To achieve real-world change, NZAOA members are shifting their focus to policy advocacy, working with governments to push for green industrial and financial policies.
Of the 88 members, 80 have also set targets for investments into ‘climate solutions’ in a bid to support real-world decarbonisation.
In 2023, the amount of capital allocated towards climate solutions – mainly in corporate bonds and real estate – was $550m, or 6% of total assets under management.
Other asset classes
The report reveals that asset owners are now comfortable setting net-zero targets for listed equities, real estate, corporate debt and carbon-intensive infrastructure – all of which were at least 80% covered in NZAOA members’ targets.
The average target for GHG reductions across all four asset classes is currently 28.2%, with a minimum of 12% and a maximum of 45%.
Private assets, on the other hand, are still a challenge. The report observed that this was partly because there is not enough available data for the asset class, but this is expected to change over coming years, it predicted.
Asset managers
The NZAOA has also stepped up its efforts to engage the asset management industry.
The biggest increase in targets being set by its members over the past three years is around asset managers: more asset owners are aiming to engage with companies via explicit requests to their managers, and get managers to address climate change policies and practices.
The reports notes “the reliance of many Alliance members on external managers, which do not yet offer many products that reflect sector decarbonisation pathways”.
“From the Alliance’s perspective, there is a clear need for asset managers to offer a new product range to cover this lacuna.”
People’s Partnership halves carbon footprint of main investment fund
The People’s Pension, a £30bn (€35.5bn) UK mastertrust that recentl set a target of achieving net zero greenhouse gas emissions by 2050, has more than halved the carbon footprint of its main investment fund in 12 months after moving £15bn of its assets into climate aware investment strategies.
The total carbon emissions within the scheme’s Global Investments pool, which comprises up to 85% shares, dropped by 53% at the same time as the scheme’s assets grew by £8bn. The reduction in portfolio emissions surpasses the scheme’s expectation of a cut by at least 30%.
The master trust’s allocation to low carbon equity indices now stands at £18bn, it reported today.
Following the change to the asset allocation, three sectors are responsible for over 70% of the remaining emissions linked to the master trust’s growth assets: materials, utilities, and industrials. Between 40-60% of the investee companies within these sectors have set science-based targets to reduce their emissions, the pension fund said.
Reporting by Susanna Rust
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