Thirty of the world’s largest investors with $5 trillion assets under management have collectively agreed on concrete portfolio decarbonization targets that follow the Intergovernmental Panel on Climate Change (IPCC) 1.5 °C scenario for the next five years.

The Net Zero AOA was initiated by Allianz, Caisse des Dépôts, La Caisse de dépôt et placement du Québec (CDPQ), Folksam Group, PensionDanmark, and SwissRe. Since then, Alecta, AMF, CalPERS, Nordea Life and Pension, Storebrand, and Zurich have joined as founding members. Since then, Aviva, AXA, CNP Assurances, Fonds de Réserve pour les Retraites (FRR), Generali, the Church of England, Munich Re, ERAFP, KENFO, Wespath, PFA pension, SCOR, MP Pension, Danica Pension, the United Nations Joint Staff Pension Fund, the David Rockefeller Fund, Cbus and BT Pension Scheme.

UN-convened Net-Zero AOA members will implement deep greenhouse gas (GHG) emissions reductions in the 16% to 29% range by 2025 from 2019, amid likely rising global emissions in the same period.

“In order to enable members to meet their fiduciary duty to manage risks and achieve target returns, this Commitment must be embedded in a holistic ESG approach, incorporating but not limited to, climate change, and must emphasize GHG emissions reduction outcomes in the real economy.”

Alliance – previous speech at the UN Secretary-General’s Climate Summit in New York on September 23rd, 2019

Published for public consultation, the 2025 Target Setting Protocol lays out plans for this substantial decoupling of asset owners’ portfolio GHG emissions from the global economy. The Protocol is integral to coherent and comprehensive plans to reduce emissions, increase investment in the net-zero emissions transition and enhance influence on markets and government policies.

With this Protocol, Alliance members are sounding a very loud signal to the thousands of companies they own that deep emissions cuts are required. They will work with those willing to adjust their business models, and do not wish to engage in a divestment exercise. In order for their efforts to be met with success, substantial government action is required.

In the first quarter of 2021, individual Alliance members will set their own portfolio targets from different starting points with respect to the level of carbon emissions currently contained within their portfolios. Several Alliance members will set large reduction targets, while others have already made substantial progress in their journey to net-zero, therefore the reductions required for their portfolios will be at the lower end of the range, while for some a lower 2025 target may reflect geographic or policy constraint that require them to decarbonize more slowly in early years.

The Protocol was constructed to allow Alliance members to employ the combination of approaches that best supports their unique decarbonisation and engagement strategies and acknowledges their different carbon levels as of today. Each member is unique and as such may identify unique levers that exist within their institutions for accelerating decarbonisation. They also have different investment scopes, strategies, internal governance structures and levels of exposure to certain high-emitting sectors.

In this way the Alliance members aim to have “transparent, and unique” targets, which suit individual institutions, but which can also be aggregated such that progress for individual members and for the Alliance as a whole can be tracked and reported transparently

The first steps towards Alliance commitments are twofold: transitioning investment portfolios to net-zero GHG emissions by 2050; and achieving this through advocating for, and engaging on corporate action, as well as public policies, for the low-carbon transition of economic sectors in line with science and under consideration of social impacts. Defining net-zero pathways must take both goals into account, while also considering implications for a just transition.

Engagement with portfolio companies is a core component to assure that not only the Alliance members’ portfolios transition to net-zero, but that the Alliance members also have an impact on the real economy. Although decarbonization of portfolios could be easily achieved by selling carbon intensive investments, it is highly questionable if such actions alone would have a positive impact on the real economy. Additionally, it might undermine Alliance members ability to engage with these corporate to effect reductions in the real economy.

“According to the UNEP Emissions Gap Report, every year of postponed emissions peak means that deeper and faster cuts will be required. The Target-Setting Protocol represents world-leading progress on the required emissions reductions from some of the biggest investors in the world.”

Eric Usher, Head of UNEP FI

Bruno SERVANT, Director of Investments of GENERALI FRANCE, commented on the commitment of the GENERALI Group in favor of sustainable investments, on the occasion of the publication of the protocol for setting 2025 objectives by the Net-Zero Asset Owner Alliance of United Nations (NZ AOA):

“With 630 billion euros in total assets under management, Generali is one of the largest institutional investors in Europe and can make a significant contribution to the fight against climate change by selecting and influencing the companies in which we invest.

Our coal policy requires the divestment of companies most exposed to the thermal coal supply chain (power generation, mining, etc.) in our insurance portfolios. With the NZ AOA initiative, we are committed to taking action with companies to ask them to have a strategy for phasing out coal, aligned with the objective of limiting the rise in temperatures to 1.5 ° C above that of the pre-industrial period.

AOA members will strive to achieve this goal, in particular by advocating and committing to action by business, industry and public policies in favor of a transition to a low carbon economy, ” based on scientific criteria and taking into account the associated social impacts. This commitment is made on the assumption that governments will meet their own commitments to ensure that the goals of the Paris Agreement are met.

Managing climate change is not only our duty to the environment and future generations, it is also part of our duty to our investors and other stakeholders. Climate change is a major challenge for the companies in which we invest, facing physical and transition risks and which may see their assets lose value (“stranded assets”).

The impact on the real economy also involves investing in companies and activities that offer solutions to climate change. Generali has set an investment target of 4.5 billion euros between 2018 and 2021 in green and sustainable investments.

At this moment in particular, we cannot forget the important role that green and sustainable investments can play in the post-Covid-19 recovery. The opportunity to recreate an economy that is more respectful of the environment and more sustainable. “

Bruno SERVANT, Director of Investments of GENERALI FRANCE

The full Target Setting Protocol can be downloaded here.

Article : Joana Foglia – Source : PRI – Generali