ESGNovember 5, 2024

Institutional Investors Representing $9.4T Have Set Decarbonization Targets

81 members of the UN’s Net-Zero Asset Owner Alliance plan for net-zero portfolios by 2050.

Reported by Matt Toledo

As the 29th United Nations Climate Change Conference approaches this month, the Net-Zero Asset Owner Alliance, an initiative of institutional investors committed to achieving net-zero investment portfolios, has provided its fourth progress report. Asset owners representing $9.4 trillion in assets out of $9.5 trillion represented by the NZAOA have set targets to achieve net-zero portfolios by 2050.

The NZAOA details three ways asset owners can influence the move to a net-zero emissions environment (one in which all greenhouse gas emissions are offset by greenhouse gas removal elsewhere): allocating capital to businesses focused on the energy transition; stakeholder engagement; and contributing to changing the norms and standards in the investment ecosystem.

In the report, the NZAOA noted that emissions financed across members’ portfolios declined to 254 million tons of carbon dioxide from 260 million tons the prior year. The alliance seeks decarbonization targets aligned with the 2016 Paris Agreement on climate change.

Across the alliance, 81 of 88 members that have set targets, and financed emissions have fallen annually by approximately 6%, both of which the NZAOA found in line with the 1.5 degrees Celsius pathway requirements of the Intergovernmental Panel on Climate Change, which aims to limit global warming to 1.5 C by 2030, a limit the IPCC wrote is needed to reach net zero by 2050.

Asset owners across the NZAOA have invested $555 billion in climate solutions, as of 2023, according to the report. A majority of these assets were invested in corporate bonds and real estate.

While the alliance noted progress in portfolio decarbonization among its members, the report stated that the transition to net zero is not happening fast enough in the real economy.

“Despite significant advances in asset owner portfolio decarbonization, the pace of transition in the real economy remains insufficient, with global emissions continuing to rise each year,” said Wendy Walford, head of climate risk at Legal & General, in a statement. “As long-term investors, we see the difference between governments’ climate commitments and current policies as unsustainable, and a decisive shift in policy is required to align policy frameworks with the net-zero transition more widely.”

The NZAOA boasts some of the world’s largest institutional investors among its members, but like the Climate Action 100+ Initiative, it has seen a number of departures. In September, Danish pension fund PKA, with $59 billion in assets, left the alliance. Cbus, the Australian construction and building unions superannuation fund ($61.93 billion) and the Church of England Pensions Board left the alliance in 2022 and 2023, respectively.

Despite the departures, NZAOA’s 88 members are an increase from the 74 members with $10.6 trillion in AUM outlined in its September 2022 progress report. At that time, asset owners representing $7.1 trillion had adopted intermediate net-zero targets. In September 2019, the alliance had 12 members, representing $2.4 trillion in assets in total.